Ben Carlson, Columnist

Pension Funds Would Be Well-Advised to Reduce Risk

Conditions may dictate switching from stocks to bonds.

November 21, 2017 at 5:00 PM UTC

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."

A big change is in the making.
Photographer: Ken James/Bloomberg/Bloomberg

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Municipal pension plans are in a tough spot. They have trillions of dollars in unfunded liabilities, interest rates are low, and we’re coming up on the ninth consecutive year of stock market gains in the U.S. Municipalities are going to have a hard time balancing their need to take risk against their reluctance to do so in this environment.

The largest U.S. pension fund is considering making a change by reducing equity risk in its portfolio. The California Public Employees’ Retirement System, or Calpers, is in discussions to slash its stock market allocation and more than double bond holdings to 44 percent of assets, a huge change from the current policy. Here are the current allocation targets, according to the Calpers investment policy: