(Bloomberg) -- U.S. state and local-government pension investments gained the most in two years in fiscal 2013, overshadowed by intensifying scrutiny of underfunded municipal- retirement plans following Detroit’s record bankruptcy.

Public pensions booked a median gain of 12.4% for the 12 months through June, powered by a surge in U.S. stock prices to a record, Wilshire Associates said Tuesday in a report. The funds chalked up an annualized three-year median return of 11.4% while their assets surpassed a pre-recession peak to reach $2.9 trillion, according to U.S. Census Bureau figures.

“I’d be happy,” says Bob Waid, a managing director at Santa Monica, Calif.-based Wilshire. “We’ve had a pretty good three-year run.”

Detroit, a former auto-manufacturing powerhouse that has lost more than 60% of its population since 1950, sought bankruptcy-court protection on July 18 with about $18 billion in liabilities. That included an estimated pension deficit of as much as $3.5 billion and $5.7 billion in uncovered retiree health benefits. The filing prompted U.S. governors to call for more local-finance oversight in a meeting that ended Monday.

The Federal Reserve’s policy of keeping short-term interest rates near zero, robust corporate earnings and an improving economy helped drive U.S. shares to records since January. The S&P 500 Index surpassed its pre-recession intraday peak of 1,576.09, set in October 2007, for the first time in April.

The median public pension placed almost 45% of its portfolio in U.S. equities at the end of the second quarter, according to Wilshire.

Larger allocations for U.S. and international stocks gave public pensions better returns than corporate retirement plans, which hold more bonds, according to Wilshire.

Corporate pensions had a median return of 10.1% for fiscal 2013, while for foundations and endowments, the gain was 11.3%, according to Wilshire.

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