Investment

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 as of FY 23 is as follows:

Public equities: 43.6%
Fixed income: 20.8%

Real estate: 7.7%
Alternative investments: 25.8%
Cash & Other: 2.2%

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 6/30/24 and 12/31/24

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.

NASRA Resources

Issue Brief: Investment Return Assumptions
Latest investment return assumptions, June 2025
Public retirement system rebalancing policies, November 2020
Public retirement system assets managed internally and externally, August 2025
Roll Call investment activities and asset allocations (members-only)

Other Resources

Best Practice: Investment Policies for Defined Benefit Plans, Government Finance Officers Association, October 2017
Callan Periodic Table of Investment Returns
Positioning For Change: Public Pensions After the Great Moderation , BlackRock, October 2022
Risky Business Update: Rising Inflation and Continued Uncertainty Challenge Investors , Julia Moriarty, February 2022
Capital Market Assumptions, BlackRock
Investment Returns: Defined Benefit vs. Defined Contribution Plans, Center for Retirement Research, December 2015
Bringing Home the Investment: Building the Case for Internal Investment Management, Funston Advisory Services, June 2015
Bringing Home the Investment: What Does it Take to Make Internal Management Work?, Funston Advisory Services, June 2015
How Sensitive Is Public Pension Funding to Investment Returns, Center for Retirement Research, September 2013
Best Practice: Asset Allocation for Defined Benefit Plans, Government Finance Officers Association
Global Investment Performance Standards, CFA Institute, March 2010
Best Practices in the Hedge Fund Industry, Report of the Asset Managers' Committee to the President's Working Group on Financial Markets, January 2009
Principles and Best Practices for Hedge Fund Investors, Report of the Investors' Committee to the President's Working Group on Financial Markets, January 2009
CalPERS Investment Beliefs, California Public Employees' Retirement System
Private Equity Principles, International Limited Partner Association

Become A Member

Becoming a member of NASRA offers a unique opportunity to join a community committed to the sound, efficient, and innovative stewardship of public retirement systems. Membership connects you with a network of professionals and experts, providing valuable insights into managing public retirement systems with a focus on sustainability and risk-averse strategies.

By joining NASRA, you gain the tools and resources to enhance the management of public retirement systems, ensuring their long-term success and reliability for generations to come.

What's New at NASRA: Updated Cost of Living Issue Brief

Cost-of-Living Adjustments (COLAs) play a significant role in public pensions. They help retirees keep up with rising prices, but they also add costs to pension plans. Policymakers and plan sponsors are tasked with balancing three things: benefits adequacy, plan sustainability, and affordability for members and plan sponsors.

The recent increase in inflation caused many policymakers and, in some cases pension trustees, to review how benefits are designed and paid for, including the way COLAs are granted and funded. NASRA’s recently updated issue brief on the lates trends in COLAs is available in the NASRA Research Center.