National Association of State Retirement Administrators


Public pension fund assets are invested in diversified portfolios that include public equities; bonds issued by the U.S. and foreign governments and corporations; real estate; alternatives, such as private equities, hedge funds, and infrastructure; and other asset classes. Over time, earnings on investments constitute the largest portion of public pension fund revenues, which also include contributions from employers and employees.

Public pension asset allocations typically are developed as part of a process that considers the plan's liability stream, or projected benefit payments, expected revenue from contributions, and investment earnings.

Based on the latest information from the Public Fund Survey, the average public pension fund asset allocation is as follows:

  • Public equities: 47.1%

  • Fixed income: 21.2%

  • Real estate: 6.8%

  • Alternative investments: 22.6%

  • Cash & Other: 2.5%

Investment Earnings

Over time, investment earnings consistently account for between 60 percent and 65 percent of public pension fund revenue.  Investment earnings take the form chiefly of income from fixed income securities (bonds), and capital appreciation of equities. Investment earnings are the most volatile source of public pension revenue.

Median Annualized Public Pension Investment Returns for Periods Ended 6/30/22 and 12/31/22

Investment Policies and Practices

Most public funds maintain an investment policy to guide the investment of assets. A GFOA Best Practice "Investment Policy," states in part:

An investment policy enhances the quality of decision making and demonstrates a commitment to the fiduciary care of public funds, making it the most important element in a public funds investment program.

Recommendation. GFOA recommends that all governments establish a comprehensive written investment policy, which should be adopted by the governing body.

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