The authors examine why U.S. public pensions shifted from public equities toward alternatives. Alternatives rose from 14% to 39% of risky assets between 2001 and 2021, while evidence points more to changing beliefs about alternative-asset alpha, shaped by consultants, peers, and prior experience, than to greater risk appetite.
Explaining the Rise in Alternative Investments in Public Pension Plans
Center for Retirement Research
Juliane Begenau
Research
9 Pages
Key Takeaways
Alternatives displace equities: Alternatives climbed from 14% to 39% of risky assets between 2001 and 2021, while total risky allocation rose only modestly.
Peers matter materially: A 10-point increase in peers' alternative allocation is associated with a 7.2-point increase in a pension's own share.
Risk appetite insufficient: In over 99% of model scenarios, changing risk aversion alone cannot explain the rise in alternative allocations with beliefs fixed.
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