The combination of the S&P 500 Index losing about 1 percent per year during the decade from 2000-2009 and a rising tide of obligations caused a “perfect storm” for public workers’ pension funds across the country.
These funds increasingly began turning to riskier alternative investments in private equity and hedge funds in an effort to boost returns and close the gaps created by underfunding. Unfortunately, taking more risk with such investments hasn’t generally produced the hoped-for results.
In fact, it seems such efforts have only worsened the situation. The only winners are the purveyors of such alternative investment vehicles, who earn much higher fees than those charged by passively managed funds—for example, index mutual funds and ETFs—invested in publicly available securities.
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