Kick Alternative Assets to the Curb?

Alternative assets (private equity, private market real estate, hedge funds and other assets apart from stocks and bonds) constitute approximately 30% of U.S. public pension fund portfolios and 60% of large U.S. endowment portfolios. Are they beneficial? In his August 2023 paper entitled “Have Alternative Investments Helped or Hurt?”, Richard Ennis examines impacts of alternative assets on 59 pension fund portfolios, individually and in equal-weighted composite. His key performance metric is alpha relative to static allocations to a mix of stock and bond indexes selected to match the style of each pension fund (or composite of funds) by statistical returns fitting. The stock and bond index choices are Russell 3000 stock index, MSCI ACWI ex-US stock index (hedged and unhedged) and Bloomberg US Aggregate bond index. He thereby creates a unique benchmark for each fund with which to measure its alpha. Using returns and allocations for 59 large U.S. public pension funds with a common June 30 year-end and returns for the benchmarking stock and bond indexes during 2009 through 2021, he finds that: (more…)