LEXINGTON, Ky. — The Lexington-Fayette Urban County Government Police and Fire Pension Fund has surpassed $1 billion in total assets and closed 2025 with a 12.5% annual return, investment consultants told the retirement board Wednesday during its quarterly meeting.
The fund’s value stood at roughly $1.099 billion as of Monday, Treasurer Chad reported, up from about $1.066 billion at the end of December and $1.054 billion at the close of the third quarter. The board approved the treasurer’s report and a payroll transfer letter without opposition.
Strong year tempered by relative shortfall
John Jackson and Jim O’Connor of Callan, the fund’s investment consultant, presented fourth-quarter and full-year results. The fund returned 1.87% in the fourth quarter and 12.5% for all of 2025 — well above the plan’s 7% assumed rate of return but trailing its composite benchmark of 2.35% for the quarter and roughly 14% for the year.
The underperformance was concentrated in domestic and international equity, where the fund’s actively managed strategies lagged their benchmarks. Over a 25-year horizon, however, the fund has returned more than 7% annualized and ranks in the top quartile of its public-fund peer group.
Jackson described 2025 as a year marked by volatility, shifting monetary policy and geopolitical uncertainty. The S&P 500 gained 17.9% for the year — its third consecutive year of double-digit growth — while international equities outpaced U.S. stocks for the first time in recent memory. Emerging markets led all asset classes with a 33.6% return, and the broad non-U.S. index gained 31.8%, buoyed in part by a weakening dollar.
Gold prices surged 66% over the year, reflecting what Jackson characterized as a shift in consumer sentiment from enthusiasm to concern. Inflation closed the year at 2.7%, above the Federal Reserve’s 2% target but down from 3% earlier in the year. GDP grew at a 4.2% clip in the fourth quarter, and unemployment held steady at 4.4%.
Small-cap manager struggles draw scrutiny
The board questioned the performance of Neuberger Berman, the fund’s small-cap equity manager, which posted a negative return for the quarter and trailed the Russell 2000 Index by a wide margin for the year. Lt. Abel asked whether consultants remained confident in the manager.
O’Connor acknowledged the underperformance but attributed it to broader market dynamics rather than a breakdown in the firm’s process. He noted that the small-cap index was driven in 2025 by speculative, unprofitable companies — particularly in biotech and biopharma — that Neuberger Berman’s fundamental, quality-oriented approach avoids by design. Biotech stocks alone spiked roughly 41% in the fourth quarter; removing them from the index would have left returns essentially flat, O’Connor said.
Only 10% to 15% of active small-cap managers outperformed during the period, he added, and the firm’s long-term track record supports patience. Board members noted Neuberger Berman has managed money for the fund for roughly 20 years.
Manager transition nearing completion
Commissioner Hensley praised staff for their work on an ongoing manager restructuring and asked about the remaining timeline. O’Connor confirmed that new international equity managers Chautauqua and Dimensional Fund Advisors are fully funded, and the final redemption from the former emerging-markets growth manager (Baillie Gifford) has been completed, with those proceeds being redeployed into fixed income managers McKay Shields and Siegel Bryant Hamill.
The last step — transitioning Acadian Asset Management to a different strategy within the same firm — is expected to be completed within about two weeks, the treasurer said.
Board actions
In routine business, the board approved widow’s annuity benefits for Linda Rourke and Teresa Walsh, ghost-time purchases for three active members, and February disbursements. A medical report for a disability case was sent back to the reviewing physician for clarification after board members identified inconsistencies in the doctor’s remarks.
Tributes and remembrances
The meeting closed with an extended tribute to deceased retirees and their spouses: Thelma Wheeler, widow of firefighter Bobby Wheeler; retired Police Chief Lawrence Walsh; Gracie Freeman, widow of firefighter Robert Freeman; Rose Baucom, spouse of officer Ron Baucom; and retired firefighter Ron Roark.
Fire Chief Wells praised Walsh’s legacy, saying the former police chief brought a new level of professionalism and accountability to the department and laid the groundwork for its current standards. Wells also reminded the board that February marks the anniversaries of two line-of-duty deaths — Lt. Brenda Cowan, who died 22 years ago on Feb. 13, and Firefighter Chuck Williams, whose death occurred 29 years ago on Feb. 17.
Wells also recognized honorary Deputy Chief Donnie Ridley, a longtime fixture at Station 5 who recently passed away.
Other business
Commissioner Hensley issued a reminder to active police and fire members about a recently passed federal bill eliminating taxes on overtime pay, urging those affected to contact payroll for details. Board member Rock Vance, who was absent, submitted written remarks noting the Consumer Price Index stood at 2.7% and highlighting Kentucky House Bill 406, which would provide a 13th check to state pension retirees. Vance said the bill mirrors a proposal he previously brought to the board’s legislative subcommittee, which was tabled.
The board’s next regular meeting was not announced. The Lexington Police and Fire Pension Fund is governed by Kentucky Revised Statutes 67A.360 through 67A.690. Employees contribute 12% of salary and the city contributes 47.35%.
