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The nation’s top 10 public pensions

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The latest research from Cliffwater, a Los Angeles-based alternative asset consultant to institutional investors, claims the best-performing public retirement funds have above-average allocations to alternative asset classes.

The top 25 performing funds over a 10-year annualized period had an average allocation of 29 percent to alternatives, according to Cliffwater. By comparison, the average allocation to alternatives was 25 percent for all public pension funds.

The one notable exception to the trend was the Oklahoma Teachers retirement fund, which happens to be the top-performing fund on Cliffwater’s ranking after posting a 10-year annualized return of 8.8 percent. Cliffwater’s analysts said the selection of traditional managers accounted for the fund’s performance.

There is no arguing institutional investors’ growing interest in alternatives in recent years. Last year, state pension funds added another 1 percent to alternatives, mostly moving money from fixed-income.

In 2006, the average public fund allocated a mere 10 percent to alternatives, significantly lower than today’s average.

Here are the top 10 best-performing public funds according to Cliffwater, and their average 10-year annualized return. 

1. Oklahoma Teachers Retirement System

10-year annualized return: 8.8 percent

The top-performing fund doesn’t depend on above-average alternative allocations for its returns. In July, it announced it topped the $14 billion threshold. The fund says it takes a “patient, long-term” approach, focusing on low fees and streamlined internal administration.

2. Missouri Local Government Employees Retirement System

10-year annualized return: 8.4 percent

The “Molagers” fund is now 91.7 percent funded, according to a recent release from its administrators. That’s up from 86.5 percent a year ago, and safely ahead of the country’s average public funding ratio of 72 percent, according to the Center for Retirement Research at Boston College.

3. Delaware Pension Retirement System

10-year annualized return: 8.4 percent

The Delaware Public Employees’ Retirement System consists of nine retirement plans and three comingled pension funds, according to its website. Research by George Mason University said the nine funds are, on average, funded at 81.4 percent with an unfunded liability of $1.03 billion.

4. Missouri State Employees Retirement System

10-year annualized return: 8.4 percent

The Missouri State Employees Retirement System fund oversees more than $8 billion. Its website says that its alternative allocation (24.1 percent) was almost equal to its public equity allocation (25 percent).

5. Oregon Public Employee Retirement System

10-year annualized return: 8.4 percent

Including all accounts, Oregon PERS was funded at 96 percent in 2013, according to its website. In 2007 it enjoyed a surplus, funded at 112 percent.

6. Washington State

10-year annualized return: 8.3 percent

Only two of the state’s eight public funds have funding liabilities, according to the Washington State Department of Retirement Systems’ website. All told, the funds hold $74.7 billion. The funds’ overall health is in spite of a $41 million hit it took in its private equity holdings when Washington Mutual famously failed, a key instigator to the 2008 financial crisis.

7. Louisiana State Employees Retirement System

10-year annualized return: 8.2 percent

LASERS ended the June 30, 2014 fiscal year with an investment return of 18.8 percent, according to its website. The total asset value of the system was $11 billion at that time, the highest in the history of LASERS. The funds pay out over $1 billion in annual benefits.

8. Minnesota

10-year annualized return: 8.2 percent

The Minnesota State Retirement System manages four funds. The funds actuarial analysis showed overall funding level of 87.8 percent in 2013. Accounting for projected returns and liabilities, the funds are not expected to top the 90 percent funding level in the next 15 years.

9. Massachusetts Pension Reserve Investment Management Board

10-year annualized return: 8.1 percent

Private equity, hedge funds and real estate investments each occupied 10 percent of the allocation pie in the Massachusetts retirement system funds, as of the latest data in 2013. Including 4 percent holdings in natural resources, that puts alternative assets at roughly 34 percent. The funds oversee $60.6 billion in assets.

10. Arkansas Teacher Retirement System

10-year annualized return: 8.1 percent 

Private equity accounted for over 9 percent of the allocation pie in 2013. The teachers’ retirement fund expects to increase that allocation to 10 percent. Private equity returned over 15.5 percent to the fund over the 10-year period ending in March of 2013, according to the plan summary.


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