Near-zero yields are making it difficult for pensions and endowments to hit the targets they need to meet their future obligations. It’s pushing disciples of the classic investing strategy of 60% stocks/40% bonds to get more creative.
As an example, the $400bn California Public Employees’ Retirement System (CalPERS), which provides benefits for 2 million current and future retirees, must earn an annual return of at least 7% to meet those obligations. That’s not an easy task when the safe investments that pension funds usually rely on are paying sub 1%.
Creative CIOs are shifting into assets once considered on the fringes of conventional investing, such as single-family rentals, digital assets, supply-chain finance, entertainment royalties, and catastrophe bonds. Institutional investors are now allocating an average 26% of their assets to alternative strategies (up from 11% in 2006).
Allocators will continue to seek higher returns via more esoteric asset-backed structures
