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
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: Suggested Citation