Large Pensions Outperform In Study

  • Ahead in quarterly, annual, 10-year tallies
  • Smaller plans have difficulty diversifying
  • CalPERS annual return is near median

International stocks and alternative investments helped propel public pension plans with assets of $5 billion or more to better returns than their smaller counterparts, according to a report by Wilshire Associates. Plans with at least $5 billion in assets tracked by the Santa Monica, Calif.-based consulting firm posted a median return of 2.45 percent in the fourth quarter 2012.

The report, which includes nearly 1,570 plans representing more than $2.75 trillion in assets, shows that plans with less than $1 billion in assets posted a median return of 1.71 percent during the quarter.

The larger funds posted a median return of 13.43 percent for all 2012, compared with a median return of 12.47 percent by the smaller funds. The larger plans also notched better returns over 10 years—a median 7.96 percent compared with a median 6.95 percent by small plans.

The larger plans’ higher gains are due to the greater resources available they have to vary the mix of their holdings, said Robert Waid, a managing director at Wilshire. “Smaller plans have more difficulty diversifying into certain asset classes,” said Waid. “Smaller plans don’t have the resources to keep track of all that.”

At the end of October, the $256.1 billion California Public Employees’ Retirement System, the biggest U.S. pension fund, managed 65 percent of its assets on its own and had 35 percent managed externally, according to a spokesman. The fund posted a 13.26 percent return last year, compared with the 13.43 percent median return for larger plans last year, led by gains in its global stocks and real assets, including stakes in office, apartment, industrial and office buildings.

The fund’s assets include investments in domestic and international stocks and debt, private equity, real estate, timberland, commodities and infrastructure. The fund at the end of October had 49 percent of its assets allocation to public equity, 13 percent in private equity, 18 percent in income, 9 percent in real estate and 1 percent in forestland and infrastructure. The remainder of the fund’s assets were in its liquidity, inflation and absolute return strategy asset classes.