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The Rise of Alternatives

By: Juliane Begenau, Pauline Liang and Emil Siriwardane
  • Format:Print
  • | Language:English
  • | Pages:63
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Abstract

Since the 2000s, U.S. public pensions have shifted their risky investments towards alternative assets like private equity and hedge funds, some more aggressively than others. We explore several explanations for these cross-sectional trends, focusing on those implied by the mean-variance models used by most pensions. Our evidence suggests that the rise of alternatives has been fueled by an increase in their perceived risk-adjusted returns relative to public equities. Pension beliefs are shaped by investment consultants, experience in the 1990s, and peers. Explanations rooted in risk-seeking motives, such as those driven by pension underfunding, have weaker empirical support.

Keywords

Investment Funds; Investment Return; Risk and Uncertainty

Citation

Begenau, Juliane, Pauline Liang, and Emil Siriwardane. "The Rise of Alternatives." Harvard Business School Working Paper, No. 25-016, August 2024.

About The Author

Emil N. Siriwardane

Finance
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