Photographer: Michael Nagle/Bloomberg

U.S. Public Pensions Returned 3.5% Last Quarter

Updated on
  • Eighth consecutive positive quarter, longest run since 2014
  • Stock gains worldwide helping dig plans out of the hole

U.S. public pensions are off to a good start, posting a median 3.5 percent return in the quarter that ended September, the first of the fiscal year, as stock prices rose worldwide, according to the Wilshire Trust Universe Comparison Service.

It marks the eighth consecutive quarter of positive returns for public pensions, the longest streak since 2014, helping to reduce the unfunded liabilities that have been a growing strain on the budgets of states and cities since the recession.

Strong corporate earnings and continuing economic growth helped both U.S. and international stocks, while foreign equities got a boost from a weakening U.S. dollar. The MSCI all country world index, excluding the U.S., rose 6.2 percent in the quarter, beating the 4 percent climb in the S&P 500 Index. Emerging markets did even better, returning 7.9 percent in the period.

“Diversification is showing that it works," said Robert Waid a managing director at Wilshire Associates in Santa Monica, California. “International is outperforming and even the equity diversifiers like emerging markets and small cap international are doing even better than that." 

The gains won’t have an immediate impact on governments’ finances, given that public pensions gauge their investment performance over decades and typically don’t adjust their annual contributions based on short-term market moves. Government employee retirement funds have returned a median 5.63 percent annually over 10 years, still short of the 7 to 7.5 percent returns most count on to cover benefits that have been promised.

Endowments and foundations with assets of $500 million or more gained 3.4 percent for the quarter.

— With assistance by Janet Lorin

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