Cost, Performance, and Benchmark Bias of Public Pension Funds in the United States: An Unflattering Portrait

The author estimates that statewide pension funds in the United States incur annual investment expenses averaging 1.3% of asset value. A sample of 24 of them underperformed passive investment during the past decade by an average of 1.4% a year. And yet, those same funds report that they outperformed...

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Bibliographic Details
Published in:Journal of portfolio management 2022-04, Vol.48 (5), p.138-150
Main Author: Ennis, Richard M.
Format: Article
Language:English
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Summary:The author estimates that statewide pension funds in the United States incur annual investment expenses averaging 1.3% of asset value. A sample of 24 of them underperformed passive investment during the past decade by an average of 1.4% a year. And yet, those same funds report that they outperformed benchmarks of their own devising by an average of +0.3% a year for the same period. This sharp disconnect raises questions about the usefulness of the funds' performance reporting, as well as their heavy reliance on expensive active management.
ISSN:0095-4918
2168-8656
DOI:10.3905/jpm.2022.1.349