Wrong. PE investments today make a small portion of the overall portfolio of a pension fund (varies from state to state). In widely swinging markets a PE form that does not speculate in the market but buys and flips with a lot of expertise a private company, and often generates higher and more sustainable returns. This is a reason why PE investments by pension funds are increasing, but they still make a small portion of the pie. In addition, pension funds are not funded through tax money but through portions of ones wage. And not all pension funds are from the state (e.g. CalPERS), most of them are run by pension fund specialized corporations or if big enough by the employer itself.