Optimizing Opportunities: Public Pension Plans Reassess Allocations Amid Higher Fixed Income Yields

By: Som Priestley, Christopher Tarui, and Ryan Wagner, T. Rowe Price 

_{In this piece, we discuss the opportunity that public pension plans have to reassess asset allocations amid higher capital market assumptions. The Crisil Coalition Greenwich 2024 study, sponsored by T. Rowe Price, highlighted that many plans maintained significant exposures to risk assets despite improved fixed income yields.} 

_{This is an excerpt from NCPERS Spring 2025 issue of PERSist.}

After an extended period of near-zero interest rates, public defined benefit plans have become overweight risk assets in an effort to achieve their return targets. However, central bank rate hikes have led to higher-yielding fixed income assets, and capital market assumptions (CMAs) have risen in many asset classes, offering new pathways that could meet their return targets. In this piece, we discuss the opportunity that public pension plans have to reassess asset allocations amid higher CMAs. The Crisil Coalition Greenwich 2024 study, sponsored by T. Rowe Price, highlighted that many plans maintained significant exposures to risk assets despite improved fixed income yields. This environment presents a chance to reduce risk by reallocating assets, potentially lowering portfolio risk while still achieving expected returns. The analysis suggests that plans can maintain their expected return on assets (EROAs) with less reliance on equities, leveraging higher yields in fixed income sectors. 

Click here to read the entire analysis at the T. Rowe Price website

Bios: Som Priestley, CFA®, Regional Head of Multi-Asset Solutions
Christopher Tarui, Head of Global Institutional Alternatives Distribution, U.S. Consultant Relations, and OCIO
Ryan Wagner, CFA, Institutional Client Service Executive