U.S. Public Pensions Post Best Quarter Since 2013 as Stocks Rise

  • Government worker pensions return 4.1% in first quarter
  • Diversification pays off as foreign stocks beat U.S. equities

U.S. state and city pensions posted a median 4.1 percent return in the first quarter, the best performance since 2013, as worldwide stock markets rose, according to the Wilshire Trust Universe Comparison Service.

Improving economic conditions and a weakening U.S. dollar helped boost international equities, with emerging markets returning more than 11 percent, according to MSCI indexes. U.S. stocks have also rallied amid speculation about the impact of President Donald Trump’s plans to cut taxes and increase spending on infrastructure, pushing the Standard & Poor’s 500 Index to a gain of 5.5 percent during the first three months of the year. U.S. bonds returned 0.82 percent while global debt returned 1.76 percent, according to Bloomberg Barclays Indexes.

It was the sixth consecutive quarter of positive returns for public pensions, the longest streak since 2014.

“A rising tide raises all boats," said Robert Waid a managing director at Wilshire Associates in Santa Monica, California. “It’s nice to be able to say that diversification paid off."

The gains may help ease the fiscal strain on state and local governments that have nearly $2 trillion less then they need to cover all the benefits that have been promised. Because they expect investment gains of more than 7 percent each year, when their returns fall short -- as in 2015 -- governments need to pay more into the funds or find a way to increase returns to make up for lost ground.

Larger pensions, which have more invested in foreign stocks and bonds, performed better than the median fund. Retirement plans with more than $5 billion in assets logged a median 4.35 percent in the first quarter, while funds with more than $1 billion in assets returned 4.28 percent.

Foundations and endowments with more than $500 million in assets had the best quarterly results, returning 4.71 percent.

“Small public plans aren’t as diversified and it cost them this time,” Waid said.

    Before it's here, it's on the Bloomberg Terminal.