TEXPERS Comments On New Study Confirming Investing Advantages For Public Employee Retirement Systems

In 2011, research firm Aon Hewitt concluded that public pension funds turned the tide on returns gained by endowments and foundations (E&Fs). Hewitt’s new study confirms public pension funds haven’t looked back. The July 2017 report, Public Funds Can Still Compete, compared the five years of returns ending in 2016 of 400 public funds to 300 E&Fs. The public funds gained 8.47% while E&Fs gained 7.47%, according to Aon Hewitt.

The interesting news didn’t stop there. The public funds outperformed at lower levels of volatility than the E&Fs, likely due to public funds use of more fixed-income assets than E&Fs. And public funds used a larger percentage of public equities (44 % stocks) in their portfolios than E&Fs (28%), benefiting from their strong returns.

In addition, the research report noted how public funds used fewer hedge funds and private equity assets than the E&Fs. Nationwide public funds averaged about 13.1% of their assets in those investments, while E&Fs averaged 23.7% in 2016.

Statement from Max Patterson, executive director of Texas Association of Public Employee Retirement Systems:

“This research is important for two reasons,” said Max Patterson, executive director of the Texas Association of Public Employee Retirement Systems. “It indicates that pension funds around the country, despite a low-interest rate, low-growth environment, have succeeded in beating an 8% assumed rate of return which has been common over the last six years. The evidence contradicts those who say public funds can’t meet or exceed 8% projections.

“Second, it indicates that Texas funds are a little different. TEXPERS member systems have had lower exposure to public equities (27%) and higher allocations to alternatives (27%) than the public fund’ average. In my view, that simply indicates Texas systems’ desire for even greater diversification,” Patterson said. “It’s working well: even while reducing their assumed rates into the 7% range, Texas pension funds have reduced their amortization periods through good investing over the last six years.”