Pension fund assets must be prudently managed to ensure that retirees receive their promised retirement benefits. This meant that funds were limited to investing primarily in government securities, investment-grade bonds, and 澳洲幸运5官方开奖结果体彩网:blue-chip stocks for many years.

Changing market conditions and the need to maintain a sufficiently high 澳洲幸运5官方开奖结果体彩网:rate of return have resulted in pension plan rules that allow investments in most 澳洲幸运5官方开奖结果体彩网:asset classes. These are some of the most common investments to which pension funds allocate their substantial capital.

Fixed Income Investments

澳洲幸运5官方开奖结果体彩网:U.S. Treasury securities and investment-grade bonds are still a key part of pension fund portfolios. Investment managers who seek higher returns than what's available from conservative, fixed-income instruments have expanded into 澳洲幸运5官方开奖结果体彩网:high-yield bonds and well-secured, commercial real estate loans.

Portfolios including 澳洲幸运5官方开奖结果体彩网:asset-backed securities (ABS) such as student loans and credit card debt are increasing as well. The risk associated with th🦂ose securities tends to be quite a bit greater than typical corporate or governmen🍌t bonds, however.

Stocks

Equity investments in U.S. blue-chip common and 澳洲幸运5官方开奖结果体彩网:preferred stocks are a major investment class for pension funds. Managers traditionally focus on 澳洲幸运5官方开奖结果体彩网:dividends combined with growth. The search for higher returns has pushed some fund managers into riskier 澳洲幸运5官方开奖结果体彩网:small-cap growth stocks and international equities.

Larger funds such as the California Public Employees' Retirement System (CalPERS) self-manage their stock portfolios. Smaller funds are likely to seek outside management or invest in institutional versions of the same mutual funds and 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs) as individual investors. The primary difference here is that the 澳洲幸运5官方开奖结果体彩网:institutional share classes don't have front-end sales commissions, redemption, or 12b-1 fees. They charge a lower 澳洲幸运5官方开奖结果体彩网:expense ratio as well.

Private Equity

Institutional investors such as pension funds and those classified as accredited invest in private equity: a long-term 澳洲幸运5官方开奖结果体彩网:alternative investment category suited for sophisticated investors. Pension funds are one of the largest sources of capital for the 澳洲幸运5官方开奖结果体彩网:private equity industry.

Private equity represents managed pools of money invested in the equity of privately held companies to eventually sell the investments for substantial gains. Private equity fund managers charge high fees based on promises of abovꦕe-market returns.

Real Estate

Pension fund real estate investments are typically passive investments made through 澳洲幸运5官方开奖结果体彩网:real estate in🎉vestment trusts (REI♒Ts) or private equity pools. Some pension funds run real estate development departments to participate directly in🐲 the acquisition, de🌠velopment, or management of properties.

Long-term investments are in 澳洲幸运5官方开奖结果体彩网:commercial real estate such as office buildings, industrial parks, apartments, or retail complexes. The goal is to create a portfoli💝o of properties th𓄧at combine equity appreciation with a rising stream of inflation-adjusted income to balance the ups and downs of the markets.

Infrastructure

澳洲幸运5官方开奖结果体彩网:Infrastructure investments remain a small part of most pension-plan a✱s⭕sets but they're a growing market of a diverse assortment of public and private developments that involve power, water, roads, and energy. Public projects experience limitations due to budgets and the borrowing power of civil authorities. They require large sums of money that are either expensive or difficult to raise. Pension plans can invest with a longer-term outlook and the ability to structure creative financing.

Typical financial arrangements include a base payment of interest and capital back to the fund along with some form of revenue or equity participation. A toll road might pay a small percentage of tolls in addition to the financing payment. A power plant might pay a little for every megaw✃att generated and a percentage of the profits if another company buys the plant.

Inflation Protection

澳洲幸运5官方开奖结果体彩网:Inflation protection is a term that's used to refer to assets that tend to go up in value as inflation ramps up. They can include inflation-adjusted bonds (TIPS), commodities, currencies, and interest-rate 澳洲幸运5官方开奖结果体彩网:derivatives. The use of inflation-adjusted bonds is often justified but the increased allocation of pension fund assets in commodities, currencies, or derivatives has raised concerns by some due to the additional idiosyncratic risk they carry.

The Bottom Line

Pension funds make promises to their participants, guaranteeing them a certain level of retirement income in꧙ the future. They have to be relatively conservative in ter𓃲ms of risk but also achieve sufficient returns to cover those guarantees.

Fixed-income securiti🍎es therefore tend to make up a big chunk of pension portfolios along with blue-chip stocks. Pensions have increasingly sought added returns elsewhere in real estate and alternative asse🤪t classes but these pieces remain relatively small parts of their portfolios.