The magnitude of public entities' equity investments and the performance of those investments have both been raised as issues in the discussion of investing Social Security trust fund reserves in private equities. Both proponents and opponents of that idea have used evidence from the equity investments of state and local pension plans to support their positions. Opponents have argued that public entities have been unsuccessful equity investors and that their investments unduly interfere with investments of the private sector. Proponents say that other public entities already have a substantial presence in the U.S. equity market. This article explores recent trends in the size and performance of the equity investments of state and local pension plans.
Equities are the largest investment in the aggregate portfolio of state and local pension plans.
The aggregate equity allocation of state and local assets is not representative of all plans. Wilshire Associates report on state retirement systems reported a median equity allocation of about 50 percent, which indicates that most plans have less than 67 percent in equities. The aggregate asset allocation of state and local pension plans has been shifting from bonds to equities over the past decade. Chart 1 shows that the proportion of aggregate assets allocated to equities has nearly tripled since the early 1980s, growing from 23 percent of plan assets in 1982 to 67 percent in 1999. The increase of the aggregate equity allocation of state and local pension plans most likely represents both additional equity investments and the general increase in equity values.