State and locally run retirement systems are increasingly turning to alternative and complex investments to help boost returns but these decisions may not be the best for all stakeholders involved, according to a new report from The Pew Charitable Trusts.

The report, which is the latest in a series of reports from Pew on the topic, uses data from the 73 largest state-sponsored pension funds, which collectively have assets under management of over $2.8 trillion (about 95 percent of all state pension fund investments).

The use of alternative investment by pension funds varies widely across the industry. The use of alternative investments for the 73 largest public funds analyzed by Pew within its report varies from 0 to over 50% of fund portfolios. There are also vast differences in returns and returns reporting.

State Pension Funds Take On More Risk, Higher Fees For Worse Returns

For the 41 largest state funds that can be clearly compared against target returns—those reporting performance after accounting for management fees and on a fiscal year basis— the average annual target return in 2015 was 7.7 %. Actual annualized returns over ten years, however, averaged 6.6 % and ranged from 4.7 % to 8.1 % a year. Only one of the 41 (and two of all 73 funds) exceeded their target return in 2015.

At the same time, the majority of funds report on the basis of a fiscal year ending June 30 and include 10-year performance returns minus the fees paid to investment managers, although 12 funds report on a different period and more than a third provide ten year returns only “gross of fees.”

States also vary in whether they include performance-based fees for certain investments, known as carried interest, for private equity. States that disclose the cost of carried interest report higher fees than states that do not.

Over the past three decades, public pension funds have increasingly relied on more complex investments to reduce volatility and improve returns. A difference of just one percentage point in annual returns on the $3.6 trillion managed by the US pension industry equates to a $36 billion impact on pension assets.

However, while asset managers have been diversifying into assets such as real estate, hedge funds, and infrastructure in an attempt to reduce volatility and improve returns, Pew’s research shows US public pension plans’ exposure to financial market uncertainty has increased dramatically over the past 25 years. Between 1992 and 2015 the expected equity risk premium for public funds increased from less than 1% to more than 4%, as bond yields declined in the assumed rates of return remained relatively stable. What’s more, research shows that the asset allocation required to yield target returns today has been more than twice as volatile as the allocations used 20 years ago as measured by the standard deviation of returns.

Given the fact that the majority of pension funds target a long-term return rate of 7% to 8%, with three only falling outside the range and given the current depressed interest rates available on fixed income securities, is easy to see why funds are investing in more complex instruments in an attempt to improve returns.

Indeed, Pew notes public pension funds more than doubled allocations to alternative investments between 2006 and 2014 with the average allocation rising from 11% of assets to 25% on assets. The higher expected return on these assets has allowed pension funds to keep return assumptions relatively constant.

But while managers have diversified in an attempt to improve returns, it seems exactly the opposite is happening. The shift to alternatives has coincided with a substantial increase in fees as well as uncertainty about future realized returns. State pension funds reported investment fees equal to approximately 0.34% of assets in 2014, up from an estimated 0.26% in 2006, which may seem like a small increase but in dollar terms, it equates to over $2 billion.

Pennsylvania’s state public pension funds are some of the highest fee payers in the industry with reported annual fees coming in at more than 0.8% of assets, or 0.9% when unreported carried interest for private equity is included. The dollar cost is $700 million per annum.

In total, the US state pension system paid $10 billion in fees during 2014 this figure includes unreported fees, such as unreported carried interest for private equity. Pew’s analysts estimate that these unreported fees could total over $4 billion annually on the $255 billion private equity assets held by state retirement systems.

Unfortunately, for all the additional risk being taken on, and fees being paid out, alternative investments are not helping state pension funds hit their return targets. 10-year total investment returns for the 41 funds Pew looked at reporting net of fees as of June 30, 2015, ranged from 4.7% to 8.1%, with an average yield of 6.6%. The average return target for these plans was 7.7%. Only one plan met or exceeded investment return targets over the ten-year period ending 2015.