Simply keeping pace with peers is not a valid measure of success. If peers are taking excessive risks in a bubble, matching their performance means you were equally foolish. True skill is outperforming in bad times while keeping pace in good times.
While a pension fund's ultimate goal is hitting its absolute actuarial return, this is irrelevant for short-term evaluation. In the short run, performance must be judged relative to peers or benchmarks to account for the prevailing market environment.
For a defined benefit pension plan, the ultimate measure of success is not outperforming peers or benchmarks. It is simply whether the plan can meet its financial obligations to beneficiaries. Failing to do so is a complete failure, regardless of how other plans performed.
Investment risk should be assessed using a 2x2 matrix plotting financial capacity against psychological risk tolerance. A high ability but low willingness is 'defensive,' while a low ability but high willingness is 'naive' and foolish, as it courts consequences the plan cannot survive.
The primary investment risk is permanent loss, not price fluctuation. Volatility becomes a tangible risk only due to external factors like an investor's psychology, career pressures, or institutional needs (e.g., daily fund withdrawals, university budget draws).
Judging investment skill requires observing performance through both bull and bear markets. A fixed period, like 5 or 10 years, can be misleading if it only captures one type of environment, often rewarding mere risk tolerance rather than genuine ability.