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Higher pension fund alts allocations may cut volatility but don’t always mean bigger returns, says CRR

An increase in allocations to alternative investments by US public pensions over the the past two decades may have helped reduce volatility, but may not have boosted overall returns, according to a report by Pensions & Investments Online.

An increase in allocations to alternative investments by US public pensions over the the past two decades may have helped reduce volatility, but may not have boosted overall returns, according to a report by Pensions & Investments Online.

The report cites a new brief from the Center of Retirement Research (CRR) at Boston College which was published in the wake of public pension funds recording negative returns for the fiscal year ended 30 June.

In the brief, Author Jean-Pierre Aubry, associate director of state and local research at the CRR, said that exposure to alternative investments was as a primary reason why negative returns were not worse that they were. The question the CRR is addressing is wether alts allocations have “helped or hurt pension funds’ long-term investment performance?”

CRR’s research shows that relative to traditional assets , a 10%-plus alternatives holding is associated with a 66-basis-point increase in the returns from 2001 to 2009, but a 33-basis-point decrease in return from 2010-2022. 

The result, according to Aubry, is that alternatives have no “statistically significant impact on returns when looking over the whole period from 2001 to 2022.”

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