Pension Funds Making Alternative Bets Struggle to Keep Up

Pension plans are much like individuals when dealing with funding their retirement. Both try to reduce funding or lack of savings by taking more and more risks. This can be successful, however it is a matter of luck and not skill. The results many times end up being disasterous. Saving for retirment should include a prudent portfolio which is globally diversfied.

NEW YORK, NY - APRIL 12:  Billionaire Galleon ...
NEW YORK, NY - APRIL 12: Billionaire Galleon Group hedge fund cofounder Raj Rajaratnam (right) enters a Manhattan Federal Court with one of his lawyers on the second day of the defense phase of his trial for insider trading on April 12, 2011 in New York City. Prosecutors allege that Rajaratnam pocketed $45 million by illegally trading on insider stock tips. While Rajaratnam's lawyers contend that he made legal trades using public information, prosecutors have called it the largest-ever hedge fund insider trading case. (Image credit: Getty Images via @daylife)

An analysis of the sampling presents an unflattering portrait of the riskier bets: the funds with a third to more than half of their money in private equity, hedge funds and real estate had returns that were more than a percentage point lower than returns of the funds that largely avoided those assets. They also paid nearly four times as much in fees.

It is important to remember that pension funds are managed daily by ‘experts’ in the field. These ‘experts’ cannot find the right risky alternative investments. This debate will continue, however investors would be best served, long term, with prudently managed portfolios.

Please comment or call to discuss how this affects you and your company retiremnet plan.

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