Aaron Brown, Columnist

Pew Got It Wrong. Pension Funds Need Alternative Investments.

Its report recommends putting more money into low-cost passive strategies. That’s wrong.

October 2, 2018 at 5:01 PM UTC

Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms. He is the author of the soon-to-be-released "Wrong Number."

Pension funds can benefit from higher-risk alternative investments.
Photographer: Michael Nagle/Bloomberg

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The Pew Charitable Trusts is out with a report on public pension funds featured the arresting subtitle: “Substantial investment in complex and risky assets exposes funds to market volatility and high fees.” There are two independent assertions here, both misleading.

The first is that investment in risky assets exposes pension funds to market volatility. True enough, but the report documents that the amount allocated toward stocks has fallen from 61 percent in 2006 to 48 percent in 2016, the latest year for which data are available. So, the subtitle is true, but a fairer version might be “Declining investment in risky assets reduces funds’ exposure to market volatility.”