US public pension funds shift to more ‘aggressive’ investments

NEW YORK (Reuters) – U.S. public pension funds are likely to have to shift to more aggressive investment strategies in coming years to fill funding gaps despite assets held by sovereign investors reaching record levels amid the stock market boom of 2021, according to a new report. .

On average, the difference between the assets and liabilities of U.S. public pension funds, known as the “funding ratio,” remains “unsatisfactory” at less than 75%, sovereign investor specialist Global SWF said in a statement. report.

To boost returns, many will likely need to focus on alternative assets, including private equity and private credit, Global SWF’s Diego Lopez told Reuters.

“Certain pockets of real assets, including logistics properties and infrastructure, could also benefit from increased interest, and hedge funds will continue to be an important part of US markets. [public pension funds’] wallets.”

Assets held by sovereign wealth and public pension funds around the world hit a record $31.9 trillion in 2021, helped by rising US stock and oil prices, and investments have reached their highest level in several years, Global SWF said in an earlier report.

For pension funds, this means that they have more assets to cover their future liabilities.

For example, California Public Employees Retirement System (CalPERS), which operates the largest US public pension fund, grew its assets by more than $92 billion in the fiscal year ending June 2021, according to its 2020-21 financial report.

The growth pushed the funded ratio of its public employees’ pension fund to about 80% at the end of June last year, from 70% a year earlier. CalPERS declined to comment.

But the U.S. national average of funded ratios — calculated as a comparison between public pension funds’ actuarial valuation of their assets and liabilities — remains below 75%, with a shortfall of $1.3 trillion, a declared Global SWF.

“To make matters worse, the labor force is expected to drop from 64% to 57% by the end of the 21st century,” he said, which risks worsening this funding gap.

(Reporting by Davide Barbuscia; Editing by Mark Porter)