By Robin Respaut

(Reuters) - U.S. public pension funds returned a median 2.19 percent in the first quarter of 2015, outperforming the 1.61 percent returns for the larger asset classes of institutional investment plans and real estate, according to a report to be released on Wednesday.

The results this year are above the first quarter of last year, when public pensions returned a median of 1.87 percent.

The annual median return for public funds also remains high, at 7.15 percent, after the first quarter of 2015, according to data from the Wilshire Trust Universe Comparison Service.

Double-digit annual returns in 2013 gave states' and cities' retirement systems a chance to start implementing reforms to fix gaping deficits. In 2014, returns dipped to 6.76 percent.

Wilshire's report covers nearly 1,700 different plans - including foundations, endowments and corporate funds - representing more than $3.5 trillion in assets.

This is the second consecutive positive quarter in a row in which returns remained above the 1.82 percent quarterly return threshold required for an annualized 7.5 percent return, said Wilshire Managing Director Robert Waid.

By comparison, the Wilshire 5000 Total Market Index returned 1.61 percent in the first quarter and 12.24 percent during the trailing 12-month period, while the Barclays U.S. Aggregate Index also returned 1.61 percent for the quarter and 5.72 percent for the previous year.

"Investors need to be looking at that long-term, five- or more likely 10-year horizon, based on risk expectations," said Waid. "That's another reason why you want to diversify into different asset classes."

Public funds returned 9.59 percent over the last five-year period and 7.02 percent over the last 10-year period, Wilshire data shows.

(Reporting by Robin Respaut)