US Public Pensions Make Riskiest Investments
Public pensions in the United States make the riskiest investments of any pensions funds around the world—and research has shown that risk has not paid off in the form of excess returns, but quite the opposite. American public funds underperform other pension plans—including Canadian and European pensions, as well as corporate US plans—by 57 basis points per year, according to Assistant Professor Aleksandar Andonov at Erasmus School of Economics.
This underperformance was “particularly strong” among mature funds with large allocations to equity and alternative assets, the researchers found. None of the other categories—corporate, European, and Canadian—underperformed on average.
“The underperformance of US public funds in equity and alternative assets can be potentially explained by excessive risk-taking,” the researchers wrote.