Despite the knocks on alternative asset management in the last year, hedge funds still outperformed stocks in 2008 and large pension funds aren’t giving up on them, notes the Wall Street Journal. True, despite some big names getting totally wiped our or halting redemptions, some actually hedged risk pretty well this year, given the circumstances.
However, one of the main reasons pension funds are sticking with hedge funds is worrisome:
“We have an 8.5% actuarial assumption, and … we have to look for programs that can reach that level,” said Alan Van Noord, chief investment officer at the $54.7 billion Pennsylvania Public School Employees’ Retirement System. “There are very few asset classes that you can get [returns] above 8%.”
Why does it sound like the cart is leading the horse here? This is what’s already got us into trouble — the chase for a specific return in an environment where that wasn’t really tenable. Between the sour economy and 0% interest rates, this is going to be an extremely low-return environment as it is. Thus in order to hit that 8.5% actual assumption, the required risks look huge.
(via Aleph Blog)
And who’s going to bail out the Pennsylvania Public School Employees’ Retirement System if there’s a shortfall?