Public Pensions Are Crowding Into the Same Private Assets
Public pension systems are becoming increasingly concentrated in private markets and similar investment strategies, exposing retirement portfolios to higher valuation risk even as funding levels improve, according to Equable Institute’s annual review of U.S. state and local retirement plans.
The nonprofit research organization examined investment and funding trends across 253 statewide and municipal pension systems representing all 50 states. The report found that public plans collectively remain 85% funded but still face an estimated $1.3 trillion funding shortfall, despite four consecutive years of investment returns exceeding actuarial assumptions.
Pension funds generated an average 9.4% annual investment return, helping reduce the funding gap by $210 billion from a year earlier. Even so, Equable said nearly 60% of public retirement systems remain financially fragile or distressed. Rising pension costs also continue to pressure government budgets, with states now spending 31.83 cents for every payroll dollar on pension contributions, roughly triple the level recorded in 2001.
The report highlighted the continued migration toward alternative investments. Public pension allocations to alternatives have expanded from $424.5 billion in 2009 to $1.91 trillion in 2025, including $831.9 billion invested in private capital strategies.
As allocations have grown, so has exposure to assets valued using internal pricing models rather than public market prices. Equable estimates that 27.1% of public pension assets are now subject to valuation risk, up sharply from an average of 9% between 2001 and 2007.
Maine, Indiana, Wyoming, Washington and Oregon allocate more than 50% of pension assets to private markets, while California, New York, Texas, Ohio and Illinois collectively oversee roughly half of all U.S. public pension assets, making their allocation decisions a major driver of national investment trends.
Equable also estimated that public pensions now have approximately $600 billion of exposure to artificial intelligence-related investments, representing roughly 8% to 10% of total retirement system assets. The estimate could exceed 10% when undisclosed private equity holdings are considered, although researchers acknowledged the limited transparency surrounding AI investments in private markets.
Among plans with publicly disclosed holdings, Colorado PERA had the largest reported AI allocation, with 14.64% of assets invested in AI-related companies. The report noted that many of the nation’s largest private equity investors do not publicly disclose underlying AI exposures, making the industry’s true exposure difficult to measure.