API: Pension Funds' Oil, Gas Returns Dwarf Other Assets

For every $1 that public pension funds allocated to oil and gas assets in 2005, investors saw a return of 130 percent in 2013, about double their returns on other investments, according to a new study from the American Petroleum Institute and Sonecon LLC.

“The lesson, frankly, from this analysis is that pension plans would be in better shape if they increased the share they invest in oil and gas,” said Robert Shapiro, a co-author of the report, said during a conference call with reporters. 

Shapiro found that the funds invested an average of 4 percent of their assets in oil and gas, which yielded 8 percent of the returns. The study reviewed the returns of the two largest funds — those owned by public school employees and state workers in every case — for each of 17 states, which included California, Florida, New Mexico and West Virginia for the eight-year period from 2005 to 2013.

“All of these pension plans have been under serious economic stress since 2008. Thirty-five states have enacted changes that will change benefits,” Shaipro said, adding that when the plans’ returns are higher, there is less pressure on them to reduce benefits.

The plans’ investments in oil and gas varied, from 1.6 percent to 5.3 percent, but what remained consistent was that in every case study, oil and gas investment returns exceeded those in other asset classes. On average, the investment was 4 percent of the pensions’ assets with an 8 percent rate of return. In dollars and cents, that’s $2.30 in 2013 returns for every $1 that was invested in the sector in 2005. Returns in other assets yielded $1.68 in 2013 from an initial $1 investment in 2005, he said.

“Regardless of how much you invest, the (oil and gas) returns are consistently above those of other assets,” Shapiro said, adding he wouldn’t expect to see a different result from other states not included in the report, such as oil-rich Texas.

Kyle Isakower, API vice president of regulatory and economic policy, noted that about 90 percent of shares in oil and gas companies are owned by “retirees or middle class American saving for retirement.” Company and board executives own less than 3 percent.

"We already know that a healthy domestic oil and natural gas industry is good news for jobs and government revenue, and we now know that it also provides stability to the nest eggs that millions of Americans are counting on for a secure retirement,” he said. 

An award-winning journalist, Deon has reported on energy, business and politics for almost 20 years. Email Deon at deon.daugherty@rigzone.com

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