State pensions and university endowments are beaten on the way to the market
Educators may be leaving the profession in record numbers this year after their time on the front lines of the pandemic, but there isn’t much sanctuary, safety or security in retirement either.
On Tuesday, data from the Wilshire Trust Universe Comparison Service showed that state and local pension funds for teachers, firefighters and police officers did not deserve the marks for their performance amid a market downturn this year. And their undergraduate counterparts certainly don’t put a high grading curve on it.
Wilshire’s senior vice president couldn’t be more blunt on Tuesday: “It’s been really a really bad quarter for investing, and there’s no way around it.” In the 12 months ending in June, the S&P 500 fell 12%, taking massive public funds with it. University endowments lost an average of 10% over the same year, while public pension funds lost an average of nearly 8%.
For both groups, the latest numbers point to the worst annual returns since 2009, and a disastrous turnaround from a bullish 2021 that saw average returns of around 27% for the group. However, for both types of mutual funds, size – and the diversity that goes with it – matters above all else:
- The California Public Employees Retirement System, the nation’s largest pension fund, saw a return of 6%, while the California Teachers’ Retirement System, the second largest in the country, returned 1.3%.
- While universities don’t usually release individual results until the fall, Wilshire reports that endowments with more than $500 million in assets saw a slight decline. earn Approximately 1% over a 12-month period.
food fight: To keep up with expenses, both fund types target solid annual returns of around 7%. To offset the ground after a year of losses, pension funds appear to be adopting more investment risk, with an average equity allocation of 57% as of June 30, making them more vulnerable to stock market volatility. Meanwhile, colleges use multi-year endowment returns before setting long-term budgets for everything from financial aid to cafeterias. In other words, if the bear market continues, the bedroom dining hall experience may soon become unpalatable.