Public sector pension plans bank on inflation moderation

US public sector pension plan managers are convinced the American economy is on the path to inflation moderation, new research from Ortec Finance shows.

The study with US public sector pension plan professionals who collectively help manage over $1.315 trillion, found near unanimity with 90% saying they are confident that inflation is on the decline.

The research by Ortec Finance found over half (52%) of the public sector pension plans questioned believe inflation could be 3.3% or lower within a year compared with 6.4% at the time of the research in February 2023. Just 10% believe the rate will be over 6% within a year.

The study found commodities have been the asset class that the US public sector pension plans interviewed have relied on the most to help hedge against inflation over the past 12 months. Some 70% of those interviewed said their plans had increased their allocation to commodities to help with this compared with 52% who had increased allocations to infrastructure and 40% who put more into gold. Just 42% said they had increased allocations to inflation-linked bonds.

Marnix Engels, Managing Director, Pension Strategy Ortec Finance said: “US public sector pension plan managers are largely convinced that inflation as a major issue is fading away with the US economy firmly on the path to inflation moderation.

“There is genuine optimism that lower inflation will become well-established with very few managers expecting it to be as high as it currently is within a year or two.

“Many US public sector pension plans have acted to manage their balance sheet effectively in order to achieve long-term objectives while dealing with the short-term risk from inflation. Strategic asset allocation decisions are however, becoming increasingly complex as a result of the ever-growing number of asset classes and investment strategies, and the unique risks associated with them.”