Public pension funds are shifting a portion of their equity and fixed-income assets to private equity and real estate, according to Milliman’s public pension funding study, which tracks the funded status and other data about of the largest 100 U.S. public pension plans. 
Data in the report was based on the most recently published fiscal year reports available, from June 30, 2022.
According to the study, public pension funds have noticeably reduced allocations to fixed income and equities and shifted these allocations to private equity and real estate. Public pension funds overall allocated 41% of their portfolios to equities, 21% to fixed income and 34% to private equity and real estate, according to the study. In the 2022 report (covering data through June 2021), these figures were 46%, 22% and 28%, respectively. Prior to 2023, these asset allocations had stayed relatively consistent, according to Milliman data.
Allocations to U.S. equities declined to 24.7% in 2023 from 27.3% in 2022, and non-U.S. equities declined to 16.4% from 18.8% during the same period. Allocations to U.S. fixed income declined slightly to 19.7% from 20.0% over the year.
Allocations to cash increased from 2022 to 2023, with allocations rising to 3.8% from 3.6%. Timber and commodities both increased to 1.1%from 0.9% and 0.8%, respectively. Allocations to private equity rose to 17% in 2023 from 14.5% in 2022, and real estate allocations rose to 10.7% from 8.1% in the same period.
“From 2013 through 2022, the PPFS asset allocation was largely stable, but our 2023 study saw a noticeable move from equity and fixed income into private equity and real estate,” said Becky Sielman, co-author of Milliman’s PPFS, in a press release. “In addition, the 2023 study found a 10% increase in retiree population.”
Milliman also reported that plan assets in the study were estimated to stand at $4.7 trillion, as of November 30. Milliman estimated that tracked plans return an annualized 7.8% between their measurement dates and June 30, 2023.
Milliman estimated the aggregate return on assets through November 30 to be 8.0%.
Pension liabilities for the year through November were $6.2 trillion, Milliman estimated, greater than estimated plan assets of $4.7 trillion, producing a deficit of $1.5 trillion.
According to the report, aggregated plan reported funded status declined to 76.1% in the 2023 study from 83.8% in the 2022 study, with funded ratios as low as 75.9% through November 30.
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Tags: Asset Allocation, Becky Sielman, Milliman, Pensions, Public Pension Funding Study
