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The report, State Public Pension Funds Increase Use of Complex Investments, provides updated information on asset allocation, performance, and reporting practices for public pension funds in all 50 states. Together, the funds studied have assets under management of over $2.8 trillion, making up about 95 percent of all state pension fund investments. The report also examines the trend toward alternative investments, such as private equity, hedge funds, real estate, and some commodities.

"Public pension funds have increasingly relied on more complex investments in an effort to diversify portfolios and boost annual returns, a shift that can result in greater financial returns but also can increase volatility and the possibility of losses," said Greg Mennis, director of Pew's public sector retirement systems project. "These trends underscore the need for transparency on plan performance and attention to the impact of investment fees on plan health."

Looking at recent returns across state plans over the past five years, Pew found that funds posted overall fiscal year gains ranging from 17 percent in 2014 to 1 percent in 2016.

The report provides updated, detailed, plan-by-plan information and analyzes the broad trends in state pension fund investments, performance, and reporting practices. Specifically, it finds:

• Government sponsors should consider investment performance both in terms of long-term returns and cost predictability. From this perspective, many fund portfolios are highly correlated with the up-and-down swings of the stock market and expose state budgets to considerable risk and uncertainty.
• Investment performance varies widely among public pension funds, with only two of the funds examined exceeding investment return targets over the past 10 years. Although these results reflect the losses that occurred at the onset of the Great Recession, more recent performance, low interest rates, and forward-looking economic forecasts point to the need to closely examine long-term investment return targets.
• The use of alternative investments varies widely-from none to over half of fund portfolios. While examples exist of top performers with long-standing alternative investment programs, the funds with recent and rapid entries into alternative markets-including significant allocations to hedge funds-reported the weakest 10-year returns. Although longer time horizons will allow better evaluation of these investment strategies, funds and policymakers should carefully examine risks, returns, and fees in the meantime.
• The data do not reveal a best or one-size-fits-all approach to successful investing, but there is a uniform need for full disclosure on investment performance and fees. In 2014, more than a third of state-sponsored funds reported performance figures before deducting the costs of investment management. In addition, unreported investment fees-primarily performance payments made to private equity managers-totaled more than $4 billion in 2014, or about 40 percent above the $10 billion in reported investment expenses for that year.

Pew has been reporting on state and local pension data since 2007. This report relies on information collected from state comprehensive annual financial reports, pension plan actuarial valuations, and other relevant documents published by individual public plans from the 73 largest state-sponsored pension funds. The analysis also used data from the Federal Reserve Board's Financial Accounts of the United States and the Wilshire Trust Universe Comparison Service.