Pension Funds Take Big Risks For Reasonable Returns

In today’s market investors have to take big gambles just to achieve modest returns—and major pension funds are willing to take the risk.

The nation’s largest public pension fund, the California Public Employees’ Retirement System, has one-fifth of its assets in bonds and only achieved returns of 2.4% last year, despite a 7.5% target rate, the Wall Street Journal reports. To make up the difference, pension funds are digging even deeper into risky investments like global stocks, REITs and private equity.

These riskier bets carry greater potential for loss, not to mention higher management fees, but there aren’t any safe investments that produce solid returns.

“I can’t just reach out and grab a high-quality bond that’s yielding 6% or 7%,” says Tom Girard, the head of New York Life’s fixed-income team. “They don’t exist.” [WSJ]

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