S&P Global Ratings indicated in a recent report that the investment returns of US public pension funds are expected to exceed expectations, benefiting from the strong stock market performance.
Analysts anticipate that driven by significant stock price increases, US pension funds will achieve a return of 11% to 12% for the fiscal year ending in June 2024. Despite a dip in the stock market in April, when the S&P 500 index plummeted by over $5.4 trillion due to US tariff policies over two trading days, the market quickly recovered and maintained an upward trend.
S&P projects that the exceptional performance of pension fund investment plans for the year will lead to an estimated return rate of 16% to 17% for the 2024 fiscal year. It typically takes a year from measurement to reporting pension fund returns. The report states that pension fund managers usually aim for a minimum return rate of 7% to ensure fund adequacy.
The rating agency has also revised its discount rate guidance from 6% to 6.5%, citing expectations of continued stock market growth driven by advancements in productivity technologies like artificial intelligence and returns from private equity.
Lead analyst Todd Kanaster wrote, “If US public pension plans continue to exceed expectations and with the maturation of new technologies, technological growth will persist, and with Federal Reserve interest rates stabilizing, we may expect to see market growth and better funding for these plans.”