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

19 Pages Posted: 12 Jul 2021

Date Written: July 9, 2021

Abstract

I estimate 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.

Keywords: Public Pension Funds, Investment Performance, Alternatives, Institutional Investors, Costs, Performance Benchmarking

JEL Classification: G10, G11, G19

Suggested Citation

Ennis, Richard, Cost, Performance, and Benchmark Bias of Public Pension Funds in the United States: An Unflattering Portrait (July 9, 2021). Available at SSRN: https://ssrn.com/abstract=3883370 or http://dx.doi.org/10.2139/ssrn.3883370

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