Private equity has once again outpaced all other major asset classes in U.S. public pension portfolios, according to the American Investment Council's (AIC) 2026 Pension Trends Report, released this week. The study, which analyzed 200 public pension funds covering nearly 34 million workers and retirees, found that private equity delivered a median annualized return of 13.2% for the 10-year period ending June 30, 2025. That compares with 10.58% for public equities, 7.77% for real estate, and 2.40% for fixed income.
This marks the 14th consecutive year that private equity has ranked as the top-performing asset class in these portfolios, a streak that began in 2012. The consistency has made private equity a cornerstone of pension investing, despite its illiquidity and higher fees. The report's findings underscore the asset class's role in helping public pension funds meet long-term obligations.
Top performers and notable results
Among the 200 funds, the Vermont Pension Investment Commission led with a 10-year annualized private equity return of 16.61%. It was followed by the School Employees Retirement System of Ohio at 16.27%, the Massachusetts Pension Reserves Investment Trust (MassPRIM) at 16.18%, and the West Virginia Investment Management Board at 16.12%. The Tennessee Consolidated Retirement System ranked fifth with 16.04%, and its chief investment officer, Michael Brakebill, credited the program with helping the fund achieve a funded status above 100%, covering more than 400,000 active and retired members.
MassPRIM's executive director and CIO, Michael G. Trotsky, noted that the 10-year return reflects disciplined portfolio management. "Private equity remains an essential part of a diversified portfolio," he said, adding that it has helped secure retirement benefits for more than 300,000 current and future retirees in Massachusetts. The Illinois State Board of Investment tied for tenth place with a 15.20% return, beating the national median by over 200 basis points, according to CIO Dipesh Mehta.
Widespread adoption and investor sentiment
The AIC report found that 86% of the public pension funds studied allocate some portion of their assets to private equity, with the asset class representing roughly 13% of total public pension fund assets on a dollar-weighted basis. This broad adoption reflects a conviction among pension CIOs that the illiquidity premium—the extra return earned for locking up capital—justifies the risk. Farouki Majeed, CIO of the School Employees Retirement System of Ohio, said private equity has been the highest-returning asset class in his fund's portfolio over 10-year and longer periods, contributing positively to long-term sustainability.
Beyond public pensions, institutional investor sentiment remains constructive. A 2026 Preqin survey cited in the report found that 88% of institutional investors planned to increase or maintain their private market investments over the next 12 months, while only 12% intended to reduce allocations. The AIC also surveyed endowments and foundations, where private equity led with an 11.78% median annualized 10-year return, ahead of public equities at 9.77%, real estate at 5.82%, and fixed income at 2.39%.
Implications for retirement plans
The data arrives as private markets gain traction in defined contribution plans. In March 2026, the U.S. Department of Labor proposed a rule that would create a safe harbor for 401(k) fiduciaries to include alternative assets, including private equity, in investment menus. This move aims to extend the diversification benefits that public pensions have long enjoyed to everyday retirement savers. For advisors, the trend is worth monitoring, as private assets gain traction in 401(k)s and reshape glide paths. The AIC report also noted that return calculations are net of fees and carried interest, though methodologies may vary across funds.
The findings reinforce the growing role of private markets in institutional portfolios, a theme echoed in recent industry surveys. For example, BlackRock's survey of family offices found increased allocations to infrastructure and private credit. As the Department of Labor's proposal advances, advisors may see more opportunities to incorporate private equity into client portfolios, though they should weigh the trade-offs of illiquidity and complexity.
