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Public Funds and Private Capital Markets: The Investment Practices and Performance of State and Local Pension Funds

Coronado, Julie L., Engen, Eric M., and Knight, Brian

Abstract:

This paper addresses the question of whether a government entity can invest money on behalf of employees or constituents in a manner comparable to the private sector. We focus on the experience of pension funds operated by state and local governments on behalf of their employees. Using data from a sample of public plans, we find some evidence that after controlling for differences in asset allocation certain types of political interference lead to a sacrifice of returns on plan assets. Combining data from public and private plans, it appears that public plans earned a significantly lower rate of return than private plans in 1998, the year for which data was available for both types of plans.

Citation

Coronado, Julie L., Engen, Eric M., and Knight, Brian (2003), Public Funds and Private Capital Markets: The Investment Practices and Performance of State and Local Pension Funds, National Tax Journal, 56:3, pp. 579-94

DOI: dx.doi.org/10.17310/ntj.2003.3.09