As Public Pensions Pile on More Risk, Returns Fail to Keep Pace
- Allocations to stocks and alternatives rise to almost 80%
- Median pension returned 6.4% from 2001 to 2017, Fitch says
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Riskier assets like private equity, real estate and hedge funds haven’t provided a magic bullet for state and local government pensions seeking to cover trillions in retirement benefits for aging workers.
While public pensions have boosted their average allocation to high-risk equities and so-called alternatives to almost 80 percent, the median fund fell short of the 7- to 8 percent returns they count on each year to pay the ballooning costs of benefits. As they take on more risk, states and local governments are increasing their exposure to market volatility and the risk of contribution spikes in a market downturn.