Brian Chappatta, Columnist

Public Pensions Throw Their Weight Around in Private Debt

The advantage of high risk-adjusted returns could come to an end because of too many big buyers.

January 6, 2020 at 11:00 AM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

One little move can create a seismic shift.
Photographer: Jiji Press/AFP/Getty Images

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Pension funds are the ocean liners of global markets. In the U.S. alone, state and local retirement funds have $4.57 trillion in assets. Across the developed world, the pool of money is close to $30 trillion. That means any change in their investment allocation, no matter how incremental, can create a seismic shift in certain corners of finance.

The hedge-fund industry, for example, swelled over the past two decades in no small part because of eager pension managers. Local officials banked on star investors delivering outsized gains to help the retirement funds meet their lofty annual return benchmarks, which in some cases exceeded 7%. According to data from Pew Charitable Trusts, U.S. state pension funds had a 26% allocation to alternative investments in 2016, up from just 11% in 2006.