Wall Street’s Biggest Customers: Public Employee Pensions?

The total tally for pension funds of all 50 states rose to $2 trillion in 2011 with the majority of assets being publicly traded stocks and bonds. Nearly $8 billion was spent on Wall Street money management fees, as pension funds jumped to the top of the list to become some of Wall Street’s biggest customers. Though during 2011, 84 percent of actively managed U.S. equity funds underperformed their benchmarks, the large majority of state pension systems contract with Wall Street firms to select which stocks and bonds are used to make up their investment portfolios.

According to a study performed by SP Indices, of the $8 billion spent by public employee pension funds on Wall Street Fees,most or all of it has gone to waste, since there is strong evidence to suggest Wall Street managers aren’t beating market averages (the typical sales pitch by Wall Street firms). Additionally, by indexing portfolios, states could cut unfunded liabilities by $100 billion.

State pension systems administer benefits for millions of retirees nationwide, have over 14.6 million contributing members, and consist of over 3,400 local public employee retirement systems. The report was constructed by the Maryland Public Policy Institute and the Maryland Tax Education Foundation and can be downloaded in full from MarylandTaxEducation.org.