Washington state's pension plan is among the best funded in the country. But Treasurer Mike Pellicciotti says that success masks a growing vulnerability of an outsized bet on high-risk equity.
About $52 billion, or 28% of the pension fund, is invested in private equity — double the national average for state pension funds, according to the Private Equity Stakeholder Project, a watchdog group.
Private equity is generally riskier than traditional investments like stocks and bonds and comes with higher fees, less transparency, looser regulations and greater limits on selling assets. The investments also lack clear performance and risk benchmarks. But supporters argue those trade-offs can deliver significantly higher returns.
Pellicciotti has warned for years that the state's heavy reliance on private equity leaves the pension system vulnerable and pensioners and taxpayers exposed if future returns fall short. He says the Washington State Investment Board has made little progress in reducing that exposure and continues to chase risky investment strategies, a course he believes puts one of the state's most important financial assets at risk.
We need to continue to have success and not take unnecessary risks that could undermine all aspects of our financial foundation as a state," Pellicciotti told The Seattle Times.
Other board members counter that taking on risk is precisely what has made Washington a national leader in investment returns. The conflict highlights a central tension facing the pension system: how far the state should go to maximize returns for pensioners without endangering the long-term stability of a fund that underpins billions of dollars in public promises.
How we got here
The Washington State Investment Board, made up of 15 members, including Pellicciotti, two legislative budget writers and representatives for the state retirement system, determines how to invest the current $185.1 billion in pension funds — among the largest in the country.
Washington's public pension system covers approximately 650,000 members, made up of about 300,000 retirees and inactive employees and 350,000 current workers who contribute to the system. It includes plans for state workers, teachers, firefighters and other public employees. The system is funded through employee and employer contributions, which are invested in a mix of low-risk, low-reward assets such as stocks and bonds, as well as higher-risk, higher-reward investments, including private equity.
About $7.7 billion was paid out to pensioners in 2025, according to the Department of Retirement Systems, which administers the payments.
Private equity has delivered a 12.3% return over the past 20 years, making it the pension system's highest-performing investment, said Allyson Tucker, CEO for the WSIB. Comparatively, fixed-income investments returned 4.2% over the same period. Overall, Washington’s pension fund has generated an 8.4% return across its full investment mix during the past two decades — well ahead of the board's expectations — a performance Tucker said has been driven largely by investments in private markets. Tucker acknowledged that while Washington is an outlier in performance compared with other pension systems, its strategy carries significantly more risk.
High returns are part of the reason the state became an early adopter of private equity.
In 1981, Washington became the second state after Oregon to invest its pension dollars in the private market, with a total of $6 million into two venture-capital funds. That move garnered $1 million, or 17.7%, in profit. By 2007, the WSIB was the fourth-biggest private equity investor in the nation.
Those investments have steadily risen. By 2016, about $17 billion, or 20% of the state's pension fund, was invested in private equity. While Washington's pension investments have continued to grow since then, other states invest an average of about 13% of their pension funds in private equity. In total, about 55% of the Washington pension fund is tied up in private markets, including private equity and real estate.
Alyssa Giachino, investor engagement director for PESP, said Washington has the largest allocation to private equity "of anybody in the country," which led PESP to rank Washington as "very high risk."
The risks ahead
The private equity industry manages $7.5 trillion in assets. While its returns have historically been known to outpace public markets, there are growing signs that future returns may slow.
At a November WSIB meeting, Meketa Investment Group, an independent consultant to the board, presented an analysis that showed assumed rates of return across comparable pension systems have declined in recent years. Jonathan Camp, Meketa's managing principal, said expectations are lower than they used to be four years ago, a warning the firm has previously delivered to the board.
Ryan Frost, former managing director for the Pension Integrity Project at the Reason Foundation and now director of budget and tax policy at the Washington Policy Center, said Washington's higher private equity allocation paid off in the early 2000s through the 2010s but raises concerns today, particularly around transparency for taxpayers who are ultimately backing the pension systems.
“The riskier the investments, the greater the volatility and the greater the downside risk is on the taxpayer," Frost said.
The Washington Legislature also raised the pension system's assumed rate of return by a quarter of a percentage point to 7.25% in 2025, even as many other states have lowered theirs.
That worries Frost.
Assumed rates of return are estimates used to determine how much employees and employers must contribute; higher assumptions reduce near-term costs but increase the risk of future pension debt if returns fall short — leaving taxpayers to foot the bill.
Frost said the increase was driven in part by state budget shortfalls, saving the state an estimated $453.5 million in pension contributions for the 2025-27 biennium, and $635.8 million in 2027-29. But he warned the move merely defers costs, with higher contributions likely required in future biennia.
At the November WSIB meeting, Pellicciotti noted that no similarly funded system in the U.S. assumes such a high rate of return.
Frost echoed that concern, arguing that while heavy private equity exposure has paid off in the past, it may not in the future. He said raising the assumed rate of return increases the pressure to keep investing in high-risk, low-transparency assets. Lower assumptions and less risk-taking, Frost said, would improve the chances of hitting long-term investment targets.
“That would be the North Star,” he added.
WSIB's own investment objective is to “maximize return at a prudent level of risk," but Pellicciotti questioned what board members consider “prudent” given its “overweight allocation” in private equity.
Tucker acknowledged that transparency concerns around private equity are “well-known” but said the state’s outsized returns wouldn't be possible without taking on risk.
WSIB's current target allocates 25% of the retirement fund to private equity and 30% to public equity. Actual allocations sit at 28% and nearly 29%, respectively.
In November, board members voted 9-1 to reduce private and public equity targets by 2% each. Pellicciotti, the lone dissenting vote, said the change does little to reduce risk because WSIB staff still have discretion to go 5% above the target. Even with the change, the current private equity allocation remains within the allowable range.
Pellicciotti warned the board it was "doubling down on a strategy that may cost our state tens of billions of lost pensions funding" in the event of a market correction.
WSIB Chair Yona Makowski argued that the proposal takes “some steps to lower the risk” and cautioned against rapid shifts in strategy.
“We cannot just dispose of some of these assets overnight,” she said, warning that abrupt changes could lead to significant losses for beneficiaries.
Pellicciotti told The Times that he raised the issue years ago to start weaning the state off private equity.
Like any investment, investors can lose money on private equity, and they have. During the 2008 financial crisis, the state pension fund lost $41 million on investments with TGP Partners, one of the world’s largest private equity firms.
Tucker said WSIB “learned some lessons” from that period, noting that public markets tend to react more quickly to downturns while private assets lag. She said she would expect Washington’s pension system to fare better than many others in a future downturn, though she declined to speculate on how quickly higher costs would reach contributors, noting that would depend on legislative decisions.
After the last financial crisis, the Legislature had to increase contributions. What happens next is uncertain, but other states like Oregon, Maine and Ohio have started to backtrack from private equity. Yale University also sold off billions in private equity holdings last year after underperformance.
"We should now be lowering our exposure to public and private equity," Pellicciotti told board members, urging closer alignment with peer states. "We are the tip of the spear when it comes to market risk and liquidity risk if there is a market correction.
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