State pensions and university endowments take a beating in market rout

Teachers may be leaving the profession in record numbers this year after their stint on the front lines of the pandemic, but there isn’t much refuge, safety or security in retirement either.

On Tuesday, data released by comparison service Wilshire Trust Universe shows that state and local pension funds for teachers, firefighters and police do not deserve passing grades for their performance amid this market downturn. year. And their university counterparts certainly don’t set a high rating curve.

Pension tensions

Wilshire’s senior vice president couldn’t have been more blunt on Tuesday: “It’s been a very, very bad quarter for investing, there’s no getting around it.” In the 12 months to June, the S&P 500 fell 12%, dragging the massive public funds down with it. University endowments lost a median of 10% in the same year, while public pension funds lost a median of nearly 8%.

For both groups, the latest numbers mark the worst annual returns since 2009 and a disastrous turnaround from a bullish 2021 that saw median returns of around 27% for the cohort. Yet, for both types of investment funds, size – and the diversification that comes with it – matters above all:

  • The California Public Employees’ Retirement System, the nation’s largest pension fund, returned minus 6%, while the California State Teachers’ Retirement System, the nation’s second-largest pension fund, returned minus 1.3%.
  • While universities typically don’t announce individual results until the fall, Wilshire reports that endowments holding assets over $500 million have seen a slight Gain by nearly 1% over the 12-month period.

Food fight: To meet expenses, both types of funds target aggressive annual returns of around 7%. To catch up after a year of losses, pension funds appear to be taking on more investment risk, with a median equity allocation of 57% as of June 30, leaving them more exposed to stock market volatility. Meanwhile, colleges are using multi-year endowment returns before setting long-term budgets on everything from financial aid to cafeterias. In other words, if the bear market continues, the dorm dining experience could soon become even more unpleasant.

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