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Alternative investments: is it a solution to the funding shortage of US public pension plans?

Published online by Cambridge University Press:  23 April 2019

Jun Peng  and
Qiushi Wang Open the ORCID record for Qiushi Wang [Opens in a new window]
Jun Peng
Affiliation:
University of Arizona, School of Government and Public Policy, Tucson, Arizona, USA
Qiushi Wang*
Affiliation:
Sun Yat-sen University, School of Government, Guangzhou, Guangdong, China Center for Chinese Public Administration Research, Guangzhou, Guangdong, China
*
*Corresponding author. Email: wangqsh3@sysu.edu.cn
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Abstract

Since 2001, public-pension plans have increasingly relied upon alternative investments (AIs). We examine the impact of this trend on investment performance and the factors that led to the reliance on AI. Using data from 92 largest plans 2001–2014, we found AI, especially private equity, generally had a positive effect on investment performance, but the effect was small and unsustainable. We also found that plans with a lower funded ratio and higher investment return expectation were more likely to allocate more assets to AIs. These findings suggest that the prospect of relying on AIs to meet investment return expectations remains a long-term challenge for state and local governments.

Keywords

Alternative investmentshedge fundsinvestment returnprivate equitypublic pensionH75H72
Type
Article
Information
Journal of Pension Economics & Finance , Volume 19 , Issue 4 , October 2020 , pp. 491 - 510
Copyright
Copyright © Cambridge University Press 2019

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