Paper by Margaret R. Bird
It is a commonly understood principle of investing that for a given level of risk the greatest determinant of return is the asset allocation. For the purpose of this study, states were surveyed to understand their asset allocation targets for each of the five categories:
Below is a chart showing the states ranked in the order of their total return on investment followed by their asset allocation by the categories listed above.
| TOTAL RETURN | STATE | FIXED INCOME | DOMESTIC EQUITY | INT'L EQUITY | PRIVATE EQUITY | OTHER |
| 14.18% | TX | 25% | 55% | 20% | -- | -- |
| 9.75% | ID | 30% | 56% | 14% | -- | -- |
| 9.70% | NM | 10%-26% | 37%-60% | 0%-15% | 3%-6% | 5%-10% |
| 9.53% | UT | 33%-43% | 40%-50% | 12%-22% | -- | -- |
| 9.21% | OR | 30% | 50% | 20% | -- | -- |
| 9.00% | OK | 44% | 56% | -- | -- | -- |
| 8.80% | NE | 45%-55% | 27.625-37.625% | 5.125-15.125% | -- | -- |
| 8.66% | WY | 50% | 50% | -- | -- | -- |
| 8.58% | ND | 48% | 41% | 10% | -- | 1% |
| 8.21% | SD | 50% | 50% | -- | -- | |
| 8.01% | MT | 100% | -- | -- | -- | -- |
| 7.42% | AK | 53.60% | 42.90% | -- | -- | 3.50% |
| 6.45% | AZ | 50% | 50% | -- | -- | -- |
| 6.40% | WA | 70-100% | 0%-30% | -- | -- | -- |
| 5.30% | CO | 100% | -- | -- | -- | -- |
| 3.00% | NV | 100% | -- | -- | -- | -- |
| 2.78% | MS | 100% | -- | -- | -- | -- |
| 2.30% | CA | 100% | -- | -- | -- | -- |
Risk is another important factor in return. Most state treasurers and investing boards are risk averse, and rightly so. They are bound by trust law to protect the corpus of the trusts. Courts hold those bound by fiduciary duty to a standard of care that is above that of normal business care. This high standard of prudence makes states, as trustees, averse to any forms of investment that a court might not view as prudent. Since most state treasurers are statewide elected officials, it is to be expected that they would not wish to explain to voters how they had lost a substantial portion of the trust funds through unwise or risky investments. Likewise, since many state constitutions still have provisions requiring the state to indemnify these funds from loss or diversion, taxpayers would not be happy over having to repay substantial losses from risky investments. Conversely, some investing authorities may find it quite uncomfortable to explain why their performance was substantially below what a prudent person could expect to receive. There is voter and legal danger too in low returns or inattention to the investment of the funds as well. With careful study, it may be possible to increase the return on investments at the same level of risk.