US state pensions have earned an average 6.8% return each year over the past decade, statistics from investment advisory company Cliffwater show.  

Data on 64 state pension systems highlights twelve months returns ranging from 4.8% to 8.4% since 2006.

Most achieved a better performance through diversification into alternatives and other forms of active management, experts at Cliffwater claim.

Higher exposure to private equity, private real estate, hedge funds and real assets has been the "most pronounced" change over the last ten years, the firm's study noted.

The state pensions reporting private equity returns earned a median annual return equal to 11.9% during the decade, well in excess of the 8.1% annual return for publicly traded stocks.

Some state pensions only recently were given the latitude to invest in alternatives, including the Georgia pension system, which reported no allocation to alternatives.

Michigan, Oregon, and Washington invest primarily in private equity and real estate.

Others, like Missouri, Utah, and South Carolina, tilt their alternatives allocations toward hedge funds.

State pensions with hedge fund allocations experienced, on average, lower return and lower risk over the 10 year period, Cliffwater added.

Hedge fund allocations grew from less than 1% of total state pension assets in 2006 to 4% in 2015. But more recently that growth has slowed down.

Overall, asset classes combined, Oklahoma Teachers (8.3%), South Dakota (8.1%) and Delaware (7.9%) achieved the highest 10 year annualised returns.

“States overall have been successful stewards of pension assets over our 10 year study period, achieving returns that captured the opportunities presented by global markets, and then some,” said Cliffwater’s Stephen L. Nesbitt.

“However, we find significant differences among individual state pension 10-year returns, mostly unexplained by simple differences in asset allocation or risk-taking.

“Some state pensions just appear more effective in implementing asset allocation compared to others.”