New York City’s five pensions solidly beat their investment targets in the past fiscal year, promising to save the city hundreds of millions of dollars in contributions as they profit from the US stock-market rally.
The funds for police officers, fire fighters, teachers, civil employees and school personnel — which together have $274 billion in assets — returned 10% in the year through June, beating their 7% target, according to a news release Thursday from city Comptroller Brad Lander.
The gains are expected to ease pressure on New York’s budget, with Lander estimating it will shave some $1.8 billion off the amount the city will need to contribute to the retirement plans over the next five years.
The pensions benefited from the steep jump in stock prices caused by exuberance over advances in artificial intelligence, the economy’s surprising resilience and growing conviction that the Federal Reserve will soon start cutting interest rates. The S&P 500 Index rose nearly 23% in the 12 months ended in June. Foreign stocks — which returned 12.4% by one index — and US equities together made up about 42% of the city’s pension assets.
New York’s returns beat the 9.3% gains of the $514 billion California Public Employees’ Retirement System and the 8.4% return of California’s $341 billion teachers pension.
Still, the pension funds’ underperformed the 13.2% return of a portfolio made up of 60% global stocks and 40% US bonds, according to investment consultant Wilshire.
New York’s investments in real estate helped to drag down the overall performance as the rise of remote work hammers the commercial building market. The Fed’s tight monetary policy has also weakened the performance of its private equity portfolio, with the slowdown in buyout activity making it harder for the funds to sell off companies they own and return cash to investors.
The pensions’ private equity portfolio gained 5.1%, while real estate investments lost 7.1%. Private equity makes up 9.8% of the pensions’ assets, while private real estate funds comprise 6.1%.
Late last year, four of New York’s five public employee pension funds boosted their allocations to illiquid investments like private equity and reduced exposure to publicly-traded stocks to diversify their portfolios and reduce volatility. Boards of directors for the retirement funds voted to raise the share of assets to be invested in so-called alternative investments — which include hedge funds, private real estate and infrastructure — to a range of 29% to 35%, up from 23% to 29%.
New York’s pensions have had an annualized return of 7% over the past decade, in line with their target. The funds mange the money to cover the benefits of more than 750,000 current and retired employees and had assets sufficient to cover about 83% of what had been promised as of fiscal year 2023.