THE WALL STREET JOURNAL. mglA lot Vur ~Brsona. fOn-Onmmeldel use Only TO On* WOWnetlaweefty CCOOS lot OISVIO Too I0 you allefigun. 0(018 a OuSlaoere Ant MONEYBEAT I THEINTELLIGENT INVESTOR Can We Be Brutally Honest About Investment Returns? Pension funds have fantastical expectations of the market MOM CHRISTOPHEVORLET By Jason Zweig Jan 19, 2018 9:47 am ET With U.S. stocks at all-time highs, it's more important than ever that investors be brutally realistic about future returns. Some of the most purportedly sophisticated investors in the world, the managers of giant pension funds for state and local government employees, might not have absorbed that lesson yet. You can learn a lot from these folks — if you listen to them and then do the opposite. A new study by finance professors Aleksandar Andonov of Erasmus University Rotterdam and Joshua Rauh of Stanford University looks at expected returns among more than 230 public pension plans with more than $2.8 trillion in combined assets. For their portfolios, generally consisting of cash, U.S. and international bonds and stocks, real estate, hedge funds and private-equity or buyout funds, these pension plans report that they will earn an average of 7.6% annually over the long term. (That's 4.8% after their estimates of inflation.) These funds often define "long term" as between 10 and 30 years. Based on how they divvy up their money, how much are these pension funds assuming specific assets will earn? They expect cash to return an average of 3.2% annually over the long run; bonds, 4.9%; such "real assets" as commodities and real estate, 7.7%; hedge funds, 6.9%; publicly traded stocks, 8.7%; private-equity funds, 10.3%. Let's put all that in perspective. EFTA00283889