Public Pension Fund Returns Beat Their Benchmarks

U.S. public pension funds’ returns were well beyond their targets for the third consecutive year, reporting a median investment return of 11.3% for the fiscal year ended June 30, according to investment consulting firm Callan. All of the major asset classes reported gains for the year ending June 30, 2025.

The plans’ returns, which left their average assumed rate of return of 7.0% in the dust by 430 basis points, were led by foreign equities and domestic equities, which gained 17.7% and 15.3% respectively for the fiscal year. The equities’ performance also surpassed their benchmarks’ returns of 17.56% and 11% respectively. 

Core fixed income returned 6.1%, compared with the U.S. Aggregate Bond Index’s 4.02% return, while the public pension funds’ median real estate investments earned 4.2%, matched the 4.2% return for the NCREIF Property Index. Callan said the real estate investments “bounced back after being a notable laggard the previous two fiscal years.”

The returns varied by plan size, led by small- and mid-sized plans, which returned 11.7% and 11.4% respectively for the year, with large plans behind the smaller funds with a median return of 10.9%. Over the past 10 years, the annualized median returns varied little by plan size with overall returns at 7.8%, while large plans earned 7.9%, and mid-sized and small plans returned 7.8% and 7.7% respectively.

Equities represented the largest median allocation for the plans at 53% as of 2024, however this has been steadily shrinking over the years, according to Callan, which reported a 56% median allocation 10 years earlier, and a 64% allocation 20 years ago. Fixed-income allocations have also been downsized to 26% in 2024 from 29% in 2014 and 31% in 2004.

As a broad array of retirement plan and retail investors are considering adding private market investments to retirement plan menus, the Callan data show that alternatives do not always translate into higher returns for pension funds.

Callan’s research found allocations to “other alternatives,” which include private equity, private credit, and diversified multi-assets, represented the greatest growth over the previous 20 years rising from 1% in 2004, to 4% in 2014, to 8% in 2024.

“Small plans’ more liquid portfolios benefited as public equities generated double-digit returns, while private markets portfolios continue to play catch-up with their marks,” Callan said. “Private credit, where many large institutional investors are increasing allocations, underperformed their public market equivalents (high yield and bank loans).”

Callan cautioned against plans using current market conditions to base strategic decisions for meeting their long-term objectives, and also warned about making market-timing decisions.

“The long-term approach has worked out over time as the median public plan’s 10-year return has consistently exceeded the median return hurdle,” Callan said.