Asset allocations: past, present and future

This presentation will review the changes P&I has seen in pension fund asset allocations, why those changes occurred and a likely direction for the future. The changes in the past five years have been dramatic. Among corporate defined benefit plans, the changes are arguably more dramatic than at any time since railroads created the first pension program in the 19th century. A significant amount of the statistics presented here come from P&I’s annual plan sponsor survey. We have electronic records to the early 1990s, but dusted off print archives to show information to the mid-1980s.

U.S. public pension funds

Looking at public plan sponsors, they have taken a completely different path.

Traditionally, public plans had a more conservative allocation, in part because they were required to do so by state law.

It was only in 2012 that the $48 billion Georgia Teachers retirement system was permitted by the Legislature to invest up to 5% in alternatives.

Fixed income and cash used to comprise more than 55% of public plan portfolios. In the late 1990s and early 2000s, public plans continued to move out of fixed income and into listed equities and alternatives.

Since the financial crisis, there has been a continued move out of fixed income. Allocations to listed equities have come down slightly, but the real dramatic change has been in alternatives. In 2012, for the first time ever, alternatives might have a larger allocation among public pension plans than fixed income.

Historically, public plan sponsors’ exposure to alternative investments was solely through real estate. Recently, they have started to invest across a spectrum of alternatives, especially private equity and hedge funds.