Alternative investments and public pensions.

Position:News & Numbers - Brief article

Public pension plans have boosted their holdings in alternative assets, defined as private equity, hedge funds, real estate, and commodities, more than doubling their holdings between 2005 and 2015 (from 9 percent to 24 percent), according to "A First Look at Alternative Investments and Public Pensions," a brief by the Center for Retirement Research at Boston College. This shift reflects a search for higher returns, a hedge against other investment risks, and diversification.

The brief looks at how the shift has affected returns and volatility over two periods: 2005 to 2015 and 2010 to 2015. Looking at investment returns, an increase of 10 percent in the average alternatives allocation was associated with a reduction of 30 to 45 basis points, primarily due to hedge funds. Alternatives did not have a statistically significant effect on volatility; hedge funds reduced...

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