The FPIF investment portfolio returned 17.7% for calendar year 2025, exceeding both the 7.125% actuarial rate of return and the 17.0% policy benchmark. For the fiscal year to date, the portfolio achieved a return of 8.3%, modestly outperforming the 8.0% policy benchmark. During the quarter ending December 31, 2025, the portfolio returned 2.9%, compared with the policy benchmark of 2.5%. All returns are net of fees.
The U.S. economy added just 584,000 jobs in 2025, far fewer than the prior year, reflecting cautious hiring amid inflation, tariffs, and demographic shifts. Wages modestly outpaced price growth and unemployment edged down to 4.4%. Despite the weak job creation, GDP grew at a 4.3% annualized rate in the third quarter, driven by strong consumer spending, higher exports and increased government outlays. Inflation held at 2.8% and the Federal Reserve cut rates twice, signaling potential further easing if labor market softness persists.
Fixed income delivered solid returns in 2025, with the Bloomberg U.S. Aggregate Bond Index up 7.3% for the year. These strong returns were supported by falling interest rates and tighter spreads. The outlook for fixed income remains mostly positive, but investors should note the high levels of uncertainty related to the path of future Fed policy given that a new chair will take over the FOMC this year. A weaker labor market, geopolitical tensions, and large budget deficits across the globe present additional risks to the asset class.
U.S. equities posted strong gains in 2025, with the S&P 500 up 17.9% and Russell 2000 up 12.8%. These gains were driven by technology and AI earnings, resilient markets following Fed rate cuts, and value stocks outperforming growth late in the year. Looking ahead, AI remains a key structural driver, but investor focus is shifting toward profitability and infrastructure-related firms. Elevated valuations, geopolitical risks, and Fed policy uncertainty may temper optimism despite supportive monetary and fiscal conditions.
Non-U.S. equities surged in 2025, with MSCI EAFE and Emerging Markets indices returning 33% and 35% year to date. These returns were aided by currency effects and multiple expansion that lifted valuations above historical norms. Sustaining this momentum will require solid earnings growth. Technological innovation and industrial investment will be driving factors for the continued growth. As global economies adjust to de‑globalization and shifting supply‑chain policies, fiscal support and monetary easing may help non‑U.S. markets navigate the new environment.
December 31, 2025 Investment Update
