Alternative asset holdings by US pension funds since the 2008 financial crisis

Abstract

Since the financial crisis of 2008, the percentage of alternative asset holdings by institutional investors has increased dramatically. The current study utilizes the Public Plans Database to analyze both the drivers and impacts of this increased allocation to alternative assets on US pension funds. The results indicate that there has been a significant divergence in the asset mixes of US pension funds since the 2008 financial crisis, with the largest adaptors of alternatives now holding one-third of their funds in these assets. Regression analysis shows that Funded Ratio and Actuarially Assumed Rate of Return are both negatively related to the adaptation of alternatives. Finally, the naïve simulation analysis shows that, despite the argued motivation for the adaptation of alternatives by market research, those funds that adapted the highest level of alternatives would have actually performed worse during the 2008 financial crisis than those funds that made only modest allocation changes since that time.