US public pensions are quietly pulling off a winand the numbers might catch Wall Street off guard. According to S&P Global Ratings, these funds are set to post returns between 11% and 12% for the fiscal year ended June, powered by a broad market surge. That’s despite a brutal two-day rout in April, when the S&P 500 (SPY) vaporized $5.4 trillion in value after investors balked at former President Trump’s tariff announcement. Even so, this year’s haul follows a 16% to 17% gain in fiscal 2024both well above the 7% return most plans target to stay solvent.
Behind the scenes, the engine driving these gains isn’t just the stock marketit’s a cocktail of global equity momentum, private equity outperformance, and long-term bets on AI. New York City’s pension funds alone clocked a 10.3% return on the back of the rally, and now S&P is lifting its discount rate assumption from 6% to 6.5%, a move that reflects growing confidence in productivity-led growth. With AI and private markets rewriting the rules, pensions may be better positioned than many assumed just months ago.
Still, the road ahead could hinge on how long this tech-fueled expansion holds. S&P’s analysts, led by Todd Kanaster, point to a possible upside if innovation continues to outpace expectations and the Fed holds steady. In that scenario, public pensions might keep defying gravityand in doing so, they could reshape how institutional investors think about long-term risk, reward, and the role of equity-heavy portfolios.