Members of the Texas Association of Public Employee Retirement Systems (TexPERS) reported an average return of 4.6% for fiscal 2020, roughly half the 9.3% return posted by its benchmark and well below the 7.4% average assumed rate of return.
The estimated average returns were based on a survey conducted by the Maples Group that 42 of TexPERS’ 68 pension funds responded to. TexPERS is a voluntary, nonprofit educational association whose members are trustees, administrators, professional service providers, employee groups and associations engaged or interested in the management of public employee retirement systems.
The funds, which had an aggregate market value $54.98 billion as of Sept. 30, also reported average returns of 5.4%, 7.4%, and 7.3% annualized over three, five, and 10 years, respectively. Although the systems met their average assumed rate of return over the past five and 10 years, they missed their target over the past 15 and 20 years, returning 6.4% and 6% annualized, respectively.
The average fund’s return underperformed a 60/40 stock/bond benchmark over the past one, three, and five years, but outperformed the benchmark over the 10-, 15-, and 20-year time periods. The benchmark consists of a 60% allocation in the Morgan Stanley Capital International All Country World (Equity) Index and 40% in the Bloomberg Barclays US Aggregate Bond Index (Agg).
The average asset allocation for the systems responding to the survey was 30.2% in alternative strategies, 25.3% in domestic equity, 16.2% in fixed income, 14.7% in international equity, 7.6% in cash and other, and 6% in global equity.
Among the alternative investments, the average allocation was 42% in private equity 27.6% in real estate, and 13.3% in marketable alternative strategies, followed by 8.4% in diversified infrastructure, 5.8% in distressed debt, 2.5% in energy/natural resources, 0.3% in venture capital, and 0.2% in commodities and managed futures.
“Pensions must succeed over the long term in matching overall performance to the decadeslong careers of public employees,” said James Smith, the president of TexPERS’ Board of Directors. “The pension systems must deliver on the promises of city employers for the deferred benefits of retirement security. This survey, perhaps more than any other, reflects on pension trustees’ proficiencies.”