U.S. public pension plans posted a median return of 11.3% for the fiscal year ending June 30, according to new research from Callan, surpassing assumed return targets for the third consecutive year. The results outpaced the 8.9% and 10.6% median gains in 2023 and 2024, providing CIOs with improved funded status metrics. 

Equities were the primary driver of performance across asset classes, while real estate lagged. Callan noted that dispersion in results increasingly reflects the degree of exposure to private markets, which have been a defining factor in separating large plans from smaller peers. Over the past decade, larger pensions have consistently outperformed, benefiting from greater allocations to private equity, private credit, and other alternatives that capture illiquidity premiums. 

The 10-year comparison underscores this advantage: while core fixed income, as tracked by the Bloomberg Aggregate index, returned just 1.8%, senior debt strategies returned 7.1%. Still, not all private markets categories kept pace with public equivalents in the most recent year—private credit trailed high-yield bonds and bank loans, and private equity fell short of the double-digit gains posted by global equities. 

Callan emphasized that the asset mix of public pensions has shifted dramatically over the last two decades. In 2004, alternative assets represented just 1% of total allocations; by 2024, that share had climbed to 8%. Larger plans, with the scale to access niche managers and strategies, are better positioned to lean further into illiquidity, while smaller peers remain more constrained. 

Looking ahead, the consulting firm expects more boards and CIOs to revisit allocation targets, particularly as expectations for fixed income returns remain subdued. With average assumed return rates hovering around 7%, the pressure to close funding gaps is likely to push pensions deeper into complex and illiquid asset classes in search of sustainable outperformance.