Posts Tagged ‘public policy institute’

Comparison of Return Rates & Investment Expenses of State Pension Funds

July 4, 2013

A report published by The Maryland Public Policy Institute provides an analysis (spreadsheet) comparison of 5-Year Performance Returns and Investment Fees of state pension funds in the United States.  Living in South Carolina, I was interested in how the Palmetto State compared.  SC does not compare well.

Below are five graphs that show and the compare the different states:

* Returns vs. Expenses

*Hypothetical Return vs. Expenses (If a relationship actually exists.)

* Returns vs. Expenses divided into median defined quadrants (Higher/Lower Returns, Higher/Lower Expenses.  Upper Left Quadrant = Higher Returns & Lower Fees =  BEST.  Lower Right Quadrant = Lower Returns & Higher Fees = WORST.)

* Return Rankings

* Expense Rankings.

* Return to Expenses Ratio Rankings (How much are Expenses eating up Returns?)

The numbers in the first four real graphs are percentages (%).  The scatter plot of Pension Fund Returns vs. Expenses shows little correlation between fees and returns.  It does show two significant outliers: Alabama & South Carolina.  Alabama’s highest in nation 5 Year Rate of Return of 7.5% was twice the next best return rate.  South Carolina’s highest in the nation fee percentage was one-third higher that the next highest fee rate.


State Pension Funds Expense_Return ComparisonState Pension Funds Expense_Return Comparison


Hypothetical Pension Fund Performance vs Investment FeesHypothetical Pension Fund Performance vs Investment Fees


State Pension Funds Expense_Return Comparison with Median Defined QuadrantsState Pension Funds Expense_Return Comparison with Median Defined Quadrants


State Pension Funds Expense RankingState Pension Funds Expense Ranking


State Pension Funds 5 Year Return RankingState Pension Funds 5 Year Return Ranking


State Pension Funds Return-to-Expense Ratio RankingState Pension Funds Return-to-Expense Ratio Ranking

Some investment managers may defend a poor comparison by stating that there is not an “apples to apples” comparison of how fees or returns are reported, and the data is not standardized.  The data in the report is the data in the report, and if not standardized,  it should be in order  to allow transparent analysis.

To the public service employees of South Carolina (and the other states), the important question is not, “Why have our state’s investments done so poorly?”  The important question is, “Why have Alabama’s investments done so much better?”