America’s public sector has not produced many pleasant financial surprises this year. This week, however, one emerged: John Liu, New York City Comptroller, announced that in the year to June 30, the City’s pension fund produced returns of more than 20 per cent, raising total assets to $119bn.
Admittedly, that level is only slightly higher than in June 2008, or just before the financial crunch. But it does, at least, mean that the losses of 2008 and 2009 have been erased. Better still, Mr Liu is not the only comptroller with good news to share: this year a host of other public pension funds, like their corporate counterparts, have also produced large gains, as rising stock and bond prices have boosted asset values.
So far, so welcome. But before any politician – or pensioner – gets too excited, it is timely to ask some hard questions about how these state pension pots are managed. For, there is a paradox hanging over America’s vast state pension sector. On paper, it would seem as if these huge funds should be bedrocks for America’s financial system. They are not only crucial in policy terms, but vast in size: New York State, Texas and California all have pots worth more than $100bn, giving them clout in the stock and bond markets, as well as in the private equity and hedge fund worlds.