The Financial Contribution of Oil and Natural Gas Company InvestmentsTo Major Public Employee Pension Plans in Seventeen States, 2005 – 2009:Pennsylvania
Robert J. Shapiro and Nam D. Pham
This report examines the financial impact of investments in oil and natural gas companieson theoverall performance of the two largest public employee pension funds in each of seventeen states.
Total Assets, Oil and Natural Gas Assets, and Returns on Those Assets,
Thedata show these investments sharply out-performed the funds’ other assets. From 2005 to 2009, spanningboth vigorous expansion and deep recession, the share of the funds’ returns attributable to oil and naturalgas investments in Pennsylvania was 2.5 times greater than their 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 five-year rate of return on oil and natural gas investments in the two largest pension funds inPennsylvania was 48%.
The five-year rate of return on all other investments was 15%.
Over the period 2005-2009, oil and natural gas investments in the two largest pension funds inPennsylvania outperformed the returns of other investments by 3.2 times.
The authors wish to acknowledge the assistance of Lisa Hamilton, as well as research support from the American Petroleum Institute. Theanalysis and conclusions are solely those of the authors.
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.