Key Takeaways
- • Public pension funds, endowments and foundations with June 30 fiscal year-ends are expected to report another year of solid returns in fiscal 2026, driven by public equities and a rebound in private market valuations, according to Chief Investment Officer.
- • The California Public Employees' Retirement System reported a preliminary 14.8% return for the last fiscal year, with gains in both public and private equity.
- • Equable Institute estimates public pension funds will report an average 9.37% return for fiscal 2026, above the 6.88% assumed rate, with a 10-year average of 8.68%.
- • Average public pension funding ratios rose to 85% in fiscal 2026 from 81.2% in fiscal 2025, but an estimated $1.3 trillion in unmet liabilities remains.
- • Equable estimates 8% to 10% of U.S. public pension assets, roughly $513 billion to $642 billion, are directly exposed to AI-related companies.
Summary
Public pension funds, endowments, foundations and other institutional investors with fiscal years ending June 30 are expected to report another year of solid returns for fiscal 2026, according to Chief Investment Officer. Strong public equity performance and a continued rebound in private market valuations are the main drivers. Peer universe data is not yet available, and many funds have not finalized results because private market valuations lag by one quarter. Funds that have reported preliminary figures are already showing double-digit returns. The California Public Employees' Retirement System (CalPERS) reported a 14.8% preliminary return, driven by gains in public and private equity.
Laura Wirick, managing principal and consultant at Meketa, said a blended index return of public equities and fixed income, based on the MSCI All Country World Index and Bloomberg Global Aggregate Index, came in at 14.5% for the fiscal year. She noted this is roughly double what many institutional funds need over the long term to meet distribution needs and keep pace with inflation. The Russell 3000 returned 22.8% and the MSCI Emerging Markets Index returned 43.5% for the year ending June 30. Inflation-hedging assets such as commodities, natural resources and gold also posted strong returns, while more conservative, fixed-income-heavy portfolios lagged.
In its "2026 State of Pensions" report, the Equable Institute estimated public pension funds will average a 9.37% return for fiscal 2026, versus a 6.88% assumed rate, with a 10-year average of 8.68%. Average funding ratios rose to 85% from 81.2% in fiscal 2025, though the funding deficit still represents $1.3 trillion in unmet liabilities. Anthony Randazzo, Equable's executive director, cautioned that many well-funded states rely heavily on private equity and real estate valuations and that all states are now relying on an AI-driven economy to sustain funded status. Equable estimates 8% to 10% of public pension assets, approximately $513 billion to $642 billion, are directly exposed to AI-related companies.
Equable estimated fiscal 2026 allocations at 43.99% equities, 23.79% fixed income, 14.05% private capital, 8.62% real estate, 5.17% commodities and miscellaneous assets, and 4.38% hedge funds. Wirick said most institutions chose to "stay the course" because rates changed little during the year. Matt Eckel, director of research at the National Conference on Public Employee Retirement Systems (NCPERS), said some allocators are moving to a moderately lower equity allocation with more fixed income as they recalibrate to recent volatility and interest-rate challenges. Investor priorities cited include private market investments, market concentration, a potential AI bubble, active managers' underperformance versus indexes, and growing interest in quantitative strategies, with geopolitical and regulatory risk prompting hedging demand.
Laura Wirick, managing principal and consultant at Meketa, said a blended index return of public equities and fixed income, based on the MSCI All Country World Index and Bloomberg Global Aggregate Index, came in at 14.5% for the fiscal year. She noted this is roughly double what many institutional funds need over the long term to meet distribution needs and keep pace with inflation. The Russell 3000 returned 22.8% and the MSCI Emerging Markets Index returned 43.5% for the year ending June 30. Inflation-hedging assets such as commodities, natural resources and gold also posted strong returns, while more conservative, fixed-income-heavy portfolios lagged.
In its "2026 State of Pensions" report, the Equable Institute estimated public pension funds will average a 9.37% return for fiscal 2026, versus a 6.88% assumed rate, with a 10-year average of 8.68%. Average funding ratios rose to 85% from 81.2% in fiscal 2025, though the funding deficit still represents $1.3 trillion in unmet liabilities. Anthony Randazzo, Equable's executive director, cautioned that many well-funded states rely heavily on private equity and real estate valuations and that all states are now relying on an AI-driven economy to sustain funded status. Equable estimates 8% to 10% of public pension assets, approximately $513 billion to $642 billion, are directly exposed to AI-related companies.
Equable estimated fiscal 2026 allocations at 43.99% equities, 23.79% fixed income, 14.05% private capital, 8.62% real estate, 5.17% commodities and miscellaneous assets, and 4.38% hedge funds. Wirick said most institutions chose to "stay the course" because rates changed little during the year. Matt Eckel, director of research at the National Conference on Public Employee Retirement Systems (NCPERS), said some allocators are moving to a moderately lower equity allocation with more fixed income as they recalibrate to recent volatility and interest-rate challenges. Investor priorities cited include private market investments, market concentration, a potential AI bubble, active managers' underperformance versus indexes, and growing interest in quantitative strategies, with geopolitical and regulatory risk prompting hedging demand.
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