My colleagues — J.P. Aubry and Anqi Chen — and I are completing a study on the impact of changes in the investment portfolios of state and local pension plans.
Since the financial crisis, public pension plans — like other large institutional investors — have moved a significant portion of their portfolios into investments outside of traditional equities, bonds, and cash. These alternative investments include a diverse assortment of assets, such as private equity, hedge funds, real estate, and commodities. Between 2005 and 2015, the allocation to alternatives more than doubled (from 9% to 24%) (see below). This shift reflects a search for greater yields than expected from traditional stocks and bonds, an effort to hedge other investment risks, and a desire to diversify the investment portfolio
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