The highest alpha driver in the past decade for US public pension funds has been private equity, a new study from the American Investment Council revealed.
Over the past 10 years, private equity has averaged returns of 8.6%. This is followed by public equity, fixed income, and real estate; which have seen median returns of 6.1%, 5.3%, and 4.7%, respectively. The total fund returns over the past decade averaged 5.3%, according to the report.
Public equities and fixed income generally receive the most dedication of assets from public pension plans, at 49.3% and 23.8%, respectively.
The highest private equity returns came from the $71.6 billion Massachusetts Pension Reserves Investment Trust, which brought in an average 13.37% over 10 years. This was followed by the Ohio School Employees Retirement System ($13.7 billion) at 13.10%, and Utah Retirement Systems ($31.9 billion) with 12.05%.
“We are in this asset class for the long term, which has given us greater flexibility to partner with industry-leading investment managers to drive performance higher,” said Michael Bailey, director of private equity at the Massachusetts Board, which has topped the list three times since the study’s 2012 inception.
In terms of funds with the highest private equity allocations, the $326 billion California Public Employees’ Retirement System (CalPERS) has $26 billion invested in the space, followed by the Washington State Investment Board ($129.1 billion) and the Teacher Retirement System of Texas ($145 billion), which allocated $19.03 billion and $18.48 billion, respectively.
The study looked at returns from 163 US public pension funds with data ranging from Sept. 30, 2016, to Nov. 30, 2017, with most dates ending on June 30, 2017.