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Analysis

Performance of public pension funds 2004-13

by William Baunton

Mon 6 Oct 2014

Performance of public pension funds 2004-13 Enlarge Chart loading Image

What the chart shows: The investment return of Government Pension Investment Fund (GPIF), National Pension Service (NPS), California Public Employees’ Retirement System (CalPERS) and Forsta AP-Fonden (AP1) 2004-13 shown against the FTSE 100 index.

Why it is important: In 2004-13, GPIF averaged around 3.7% annual return on its portfolio: this is less than NPS’ average of 6% and far less than CalPERS and AP1, which achieved 7.7% and 7.3% over the same period respectively. The 2007-08 financial crisis, as demonstrated by the severe FTSE 100 drop, affected all the funds, yielding negative returns for the year. CalPERS and AP1 lost in excess of 20%, but NPS and GPIF however faired significantly better during the crisis. It can be said that GPIF’s and NPS’ strategy over this period has perhaps consistently given more conservative, if not negative, returns.

Conversely, CalPERS’ and AP1’s asset allocation have garnered large returns but also very poor returns (see 2008): importantly, however, the good years heavily outweigh the bad. A clear differential can be seen between the performance of NPS/GPIF and CalPERS/AP1. The reason for this is asset allocation: GPIF and NPS have broadly similar asset allocations, with fixed income being the largest holding in their portfolios and allocating 32.1% and 30.8% in equity respectively (as of 2014). In contrast, CalPERS and AP1 hold around 50% in equity at present, explaining why when shockwaves went through the stock markets around the world (as shown by FTSE) during the crisis, they lost significantly more than NPS and GPIF, with the same being true for 2011. However, from 2004-06 and 2012-13, with equity performing well (as shown by FTSE), CalPERS and AP1 strongly outperform GPIF and CalPERS.

Data source: annual reports. Return data are comparable where possible.  The data for GPIF are for nominal return, data for others are net or annual rate of return for the year, AP1 data are before expenses.