The Financial Contribution of Oil and Natural Gas Company InvestmentsTo Major Public Employee Pension Plans in Four States, 2005 – 2009:Pennsylvania
Robert J. Shapiro and Nam D. Pham
This report examines the financial impact of investments in oil and natural gas companies on theoverall performance of the two largest public employee pension funds in each of four states – Michigan,Missouri, Ohio and Pennsylvania.
Total Assets, Oil and Natural Gas Assets, and Returns on Those Assets,
The data show these investments sharply out-performed the funds’other assets. From 2005 to 2009, spanning both vigorous expansion and deep recession, the share of thefunds’ returns attributable to oil and natural gas investments in Pennsylvania was 2.5 times greater thantheir share of those funds’ assets.
Two Largest Pension Funds in Pennsylvania, 2005 – 2009
StateTotal Assets(billions)Oil andNatural GasAssets(billions)Oil and NaturalGas Assets As aShare of TotalAssetsReturns from Oiland Gas Assetsas a Share of AllReturnsRatio of Oil andNatural Gas AssetReturns to TheirShare of Total AssetsPA $86.2 $2.9 3.4% 8.6% 2.5 to 1
In Pennsylvania, the two largest public pension funds represent more than 67 percent of the totalmembership and 74 percent of all assets of all public employee pension programs in the state.
The oil and natural gas investments by Pennsylvania’s two largest public pension plans accountedfor 3.4% of those funds’ total assets while contributing 8.6% of those funds’ total gains, for aratio of 2.5 to 1.
Pennsylvania’s Two Largest Public Employee Retirement Plans: Rates of Returnfrom Oil and Natural Gas Investments and All Other Investments, 2005-2009
Return on $1 invested in Oiland Natural Gas StocksReturn on $1 invested inNon-Oil and Natural GasInvestmentsRatio of Oil and Natural GasReturns to Returns on AllOther AssetsPA $1.48 $1.15 3.2 to 1.0
The rate of return on oil and natural gas investments in the two largest pension funds inPennsylvania was 48%.
The average rate of return on all other investments was 15%.
Over the period 2005-2009, oil and natural gas investments in the two largest pensions funds inPennsylvania outperformed the returns of other investments by 3.2 times.
The authors wish to acknowledge research support from the American Petroleum Institute. The analysis and conclusions are solely those of theauthors.
We use “oil and gas company holdings” synonymously with “energy sector holdings” in this report, as oil and gas companies comprise 98percent of the value of the S&P Energy Sector Index and the vast majority of energy sector holdings in the public employee pension fundsexamined here. The current S&P 500 Energy Sector Index is comprised of 60 percent integrated oil & gas companies; 18 percent oil & gasexploration and production enterprises; 14 percent oil and gas equipment and services firms; 3 percent oil and gas storage and transportationcompanies; 2 percent oil and gas drilling firms; and 1 percent oil & gas refining & marketing. Coal and consumable fuels account for theremaining 2 percent of the Index.
Comprehensive Annual Financial Report, S&P’s; and authors’ estimates.