Abstract: Institutional investors rely on past performance in setting future return expectations. Drawing on newly required disclosures for U.S. public pension funds, a group that manages approximately $4 trillion of assets, we find that variation in past returns adds substantial explanatory power for real portfolio expected returns, above and beyond asset allocation weights. We test for evidence of a rational skill hypothesis, in which pension funds with better investing skills correctly assume superior future performance, but our findings are more consistent with extrapolation that is not justified by persistence. Pension fund past performance affects real return assumptions across all risky asset classes, including in public equity where fund performance is known not to be persistent. Even in private equity, the extrapolation of past performance is driven by old instead of recent investments, and pension plans that have made fewer past private equity investments make more aggressive assumptions. Additionally, state and local governments that are more fiscally stressed by higher unfunded pension liabilities assume higher portfolio returns, and are more likely to do so through higher inflation assumptions than higher real returns.