Thu, Feb 20, 2020
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Pension's increased equity and alternative investment risk doesn't match the reward

Tuesday, May 07, 2019

Laxman Pai, Opalesque Asia:

The state and local pension funds have been increasing their allocations to riskier assets since 2001 but the higher risk has not translated into higher returns.

According to a report from Fitch Ratings, riskier assets like private equity, real estate and hedge funds haven't provided a quick and simple solution to the institutional investors seeking to cover trillions in retirement benefits for aging workers.

Asset allocation to both equities and alternative investments rose to 77% in 2017 from 67% in 2001, the report pointed out.

In contrast, asset allocation to fixed income investments and cash fell to 23% in 2017 from 33% in 2001. However, median average returns for major state and local systems were 6.2% between 2008 and 2017 compared with 6.4% between 2001 and 2017.

The falling rate of return is particularly notable for seven states (New Hampshire, Arizona, Rhode Island, Connecticut, Maryland, Hawaii and New Jersey), which showed average underperformance of 2% and higher. This is a performance gap that over time could have a material impact on how some pension plans are funded according to Olu Sonola, Group Credit Officer of U.S. Public Finance at Fitch.

"Persistent shortfalls in investment performance eventually necessitate future increases in employer contributions, which could be especially problematic for states with already elevated pension liabilities," said Sonola.

Arizona's 86% allocation to equities an......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. PE/VC: Venture debt: Is it a loan? Is it equity? Is it an pportunity?, PE, VC investments in India hit all-time high in 2019[more]

    Venture debt: Is it a loan? Is it equity? Is it an pportunity? From Forbes: Venture Capital is usually the default option for fast-growth startups looking for a cash injection, thanks to our willingness to take risks in return for equity, and with no need to pay anything back - at least

  2. Other Voices: Evolution of shrinking hedge fund fees - what do investors and managers need to know?[more]

    By Don Steinbrugge, Founder and CEO, Agecroft Partners ( Hedge funds fees remain under extreme pressure across the industry. This strong trend is driven by declining return expectations from investors, inc

  3. COVID-19: Investors track ships, chase rumours to get edge on COVID-19 risks, Coronavirus risk puts the bull run on pause, China was wise to let markets stumble[more]

    Investors track ships, chase rumours to get edge on COVID-19 risks From Reuters: As investors crunch numbers to determine how the coronavirus will hit China's economy, hedge fund manager Nathaniel Polachek has tied much of his outlook to the fate of a ship anchored near Weihai, China.

  4. Bruce Berkowitz is back!, Coatue's new quant fund lost money in the fourth quarter[more]

    Bruce Berkowitz is back! From Institutional Investor: Famed value investor Bruce Berkowitz has hit hard times over the past decade, with big bets on losers like Eddie Lampert's Sears Holdings. In fact, over the past 10 years, his Fairholme Fund's annualized return is only 4.89 percent -

  5. Opalesque Exclusive: Optima A.M. bets on healthcare and biotech innovations with long/short strategy[more]

    B. G., Opalesque Geneva: Optima Asset Management has just launched the Optima Healthcare and Biotechnology strategy, which will be managed by five portfolio managers