More than $2 trillion in public pension fund assets could potentially change management as these funds question the advantage of alternative investment classes and seek more reliable, less correlated choices in the wake of 2008 losses.
Alternative investments like private equity and real estate are supposed to buffer investors from losses in stocks and bonds, but pension fund managers found that in many cases, alternatives fell along with everything else during the market crash. Thus, they are now reevaluating the anticipated outcomes of alternative investments, rather than their objectives.
"We wanted to make sure we grouped assets so we understood why we owned them and what we expected them to do in various scenarios," Michael Burns, chief executive of Alaska's $35 billion Permanent Fund Corp., told The Wall Street Journal.
Burns and his staff started rethinking their asset classifications in 2008, when their fixed-income portfolio stopped correlating with relevant interest rates. This change caused them to question other traditional ideas about diversification.
The fund created new asset classes, including a cash portfolio, an asset class for periods of economic growth, an inflation hedge, high-quality bonds for deflationary periods and a special opportunities class to take advantage of unique market situations.