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Why don't pensions just invest in index funds generally? High required rate of returns or?
by nemomarx 5mo ago
Why don't pensions just invest in index funds generally? High required rate of returns or?
- alistairSH 5mo agoYes, underfunded relative to future payout promises, so higher rates of return required to remain solvent.
- sieabahlpark 5mo ago[dead]
- pjc50 5mo agoThey do (and will generally track the index themselves), but PE offers a higher risk/return profile and diversification.
- mamonster 5mo agoThere are multiple reason: 1. If you assume that P.E is uncorrelated/has a low correlation to the stock market (subject of many years of diatribes), then you decrease volatility of your portfolio by adding it. 2. Because a pension fund has a lot of years until they need start to paying out, then it is natural for it to attempt to harvest the illiquidity risk premium. 3. The (edit: removed extra words) "high required rate of return problem" is really a defined benefit problem. A DC plan can (and probably should) just be in mostly straight indices unless it's so big it can negotiate a good fee with asset managers for other classes.
- ninjagoo 5mo ago> Why don't pensions just invest in index funds generally? Answering the implied statement - pensions invest in PE only to the tune of about 14%. [1] [1] https://publicplansdata.org/quick-facts/national/ https://publicplansdata.org/quick-facts/national/