Industry News

On November 22, 2022, the Center for Retirement Research at Boston College (CRR) released its issue brief, Public Pension Investment Update: Have Alternatives Helped or Hurt? CRR examined whether alternative investments (such as private equity, hedge funds, real estate and commodities) have been favorable or unfavorable over the long term. The brief assesses the impact of alternative investments on pension plans’ long-term investment performance, which includes investment losses in 2022 that expunged much of the gains from 2021.

The key findings include:

• In fiscal year 2022, most state and local pension plans experienced negative asset returns, and some suggested that losses may have been much greater without alternative investments;
• Over the time period from 2001 to 2022, the results suggest that alternatives have not benefited overall returns even though they may have reduced volatility;
• State and local pension funds have increased their aggregate allocations to alternatives to 34% in 2022, up from 9% in 2001; and
• In 2001, the distribution of alternative investments was 56% in real estate, 38% in private equity, 4% in hedge funds and 2% in commodities. In 2022, the distribution was 34% in real estate, 34% in private equity, 18% in hedge funds and 14% in commodities.

The brief concludes, “the investment performance of pension funds since 2001 has been below actuarial expectations and that plans’ increasing reliance on alternative investments has not helped – although it may have dampened volatility.”

The brief is available here.