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Public Pension Quarterly Q2 2021

Rising Tides

Equity markets produced another quarter of gains during Q2 2021, rising alongside the number of global COVID-19 vaccinations administered. Despite this, the quarter was punctuated by bouts of volatility, spurred both by concerns around the pace at which the Federal Reserve might begin to withdraw monetary support, as well as an alarming spread of new COVID variants.

Historical Aggregate Funded Status

We estimate that in aggregate, public pension assets returned approximately 6% for the second quarter, resulting in the estimated aggregate funded status of our sample of plans rising roughly 5% year-to-date through June 30, 2021.

Rise in Aggregate Funded Status Continues

 

Source: Boston College Center for Retirement Research, Goldman Sachs Asset Management as of June 30, 2021. All aggregate funded statuses based on estimated asset returns and liability growth. For illustrative purposes only. Based off an estimate of a sample of 99 public pension plans’ market value returns and plan liabilities, with asset allocation data sourced from Boston College Center for Retirement Research; plan assets for these plans are approximately $3 trillion.

US Public Plans Are Turning to Leverage as an Option to Consider in Order to Potentially Enhance Returns and Manage Risk

How Can Leverage be Helpful to a Portfolio?

Reduce volatility: By reducing the amount of capital used to obtain asset class exposures, a portfolio may be able to better diversify its exposures, improving a portfolio’s risk/return characteristics.

Enhance returns: Leverage can allow a portfolio to gain exposure to a particular asset class with a relatively fractional amount of capital.  As a result, this may permit a portfolio to gain capital markets exposure of greater than 100% of capital.

Leverage May Help Plans to Improve Portfolio Risk/Return

 

Source: Goldman Sachs Asset Management. For illustrative purposes only. Equity assumed to be 100% US Large cap; Fixed income assumed to be 100% Barclays Agg; Private assets assumed to be 50% private equity and 50% private debt.

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The views expressed herein are as of 6/30/2021 and subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

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