Taking a Look at PERS’ Investment Allocation

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This post looks at PERS’ investment allocation. The chart below lists PERS’ target allocation for each asset class, return, and the allocations four years ago and today.

Asset class

Target allocation

1 year return

10 year return

12/31/14
allocation

12/31/18
allocation

U.S. equities

27%

-5.68%

13.2%

35.80%

25.51%

Foreign equities

22%

-7.38%

7.25%

21.51%

20.67%

Global equities

12%

-7.38%

9.83%

6.03%

11.58%

Fixed income

20%

-.05%

5.1%

20.63%

20.85%

Real estate

10%

7.25%

8.12%

10.22%

10.91%

Private equity

8%

18.02%

-.06%

4.77%

8.85%

Cash

1%

1.04%

1.64%

Ponzi schemes

0%

0%

0%

Total fund

-3.71%

9.81%

Other stats:
3 year return: 7.29%
5 year return: 5.84%
Investment assumption: 7.75%
 
My Take:
The investment mix seems reasonable.
The 3 and 5 year returns are unsurprising. The 10 year return benefits from the recovery from the biggest financial crisis since the Great Depression.
The 7.75% investment assumption is still unrealistic. I don’t know that you can find even a decent argument supporting a 7.75% assumption.
Everything I read says a realistic investment assumption for the next decade is around 5%. That does not include investment management fees and expenses. It’s probably safe to add 1% to the required return to cover these.
Private equity is kind of a black box. But it’s a growing asset class for pension funds. Hopefully, it will be a good long term decision.
Besides the inflated investment assumption, the biggest problem for PERS is government is shrinking and the number of retirees exceeds new participants.
PERS is going to end badly. We just don’t know when.

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