Review of Financial Studies· 2026Q1
The Rise of Alternatives
- 6citations
- Q1SCImago
- 2026year
Short summary
U.S. public pension funds significantly increased risky investments in alternative assets (private equity, hedge funds) since the 2000s, driven primarily by evolving beliefs about their risk-adjusted returns, shaped by consultants, peers, and past market experience.
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Key points
- U.S. public pension funds have shifted significant investments from public equities to alternative assets since the 2000s.
- Beliefs about the risk-adjusted returns of alternatives are identified as the central driver of this shift.
- These beliefs are shaped by investment consultants, peer funds, and historical market performance (1990s).
- Alternative demand-side factors like risk-seeking or spending needs have less empirical backing.
AI-generated from the title and abstract; the full text is not read.
Abstract
Abstract Since the 2000s, U.S. public pension funds have actively shifted their risky investments away from public equities and toward alternative assets like private equity and hedge funds—some much more than others. We explore a range of possible explanations for these trends and argue that beliefs about the risk-adjusted return of alternatives have played a central role. Pension beliefs are shaped by investment consultants, peers, and experience in the 1990s. Other demand-side channels related to risk-seeking motives, spending needs, and fund governance have weaker empirical support. We also consider supply-side factors and agency interpretations of the data.
The authors' abstract, as published at the source. Review of Financial Studies, 2026 · DOI ↗
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Field: Finance
FinanceEconomics, Econometrics and Finance