Over the past 10 years the global market has gone from deep bear territory to what could be the longest sustained bull run in history. While on the surface it might look like the markets have recovered from the downturn, and then some, the global financial crisis dug a deep hole from which most institutional portfolios are still digging out.
More alts: Pension plans have reduced equity allocations since 2007 and increased use of alternatives. Global mandates accounted for 18% of total equity allocations in 2017.
Making up ground: Each of the major asset classes has posted a positive return since the beginning of 2010. U.S. debt and private equity were the only asset classes to stay in the black during the crisis.
Long road back: $1 billion invested on Jan. 1, 2007, would have made about 10% by the end of October 2007.* After losing as much as 38% through March 2009, it took 40 months to get back to that level, and 51 to remain above it.
Rising risk: The trailing three-year risk-return profile has reverted close to its 2007 level. Low volatility in 2017-’18 drove an uptick in Sharpe ratios as higher equity returns offset rising rates.
*Based on the average pension plan allocation of the P&I Top 1000 universe. Sources: Cambridge Associates, P&I Research Center, Bloomberg LP