The Rise of Alternatives

59 Pages Posted: 11 May 2022 Last revised: 19 Jan 2024

See all articles by Juliane Begenau

Juliane Begenau

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Pauline Liang

Stanford Graduate School of Business

Emil Siriwardane

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Date Written: January 18, 2024

Abstract

Since the 2000s, U.S. public pensions have rotated out of public equities and into alternative assets like private equity and hedge funds. We explore several explanations for these trends, focusing on those implied by standard portfolio theory. 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 or low interest rates, have weaker empirical support.

Keywords: Public Pensions, Private Equity, Alternatives, Beliefs, Reaching for Yield, Underfunding

JEL Classification: G11, G23, G29, G41, H55, H75

Suggested Citation

Begenau, Juliane and Liang, Pauline and Siriwardane, Emil, The Rise of Alternatives (January 18, 2024). Stanford University Graduate School of Business Research Paper , Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.4105813

Juliane Begenau (Contact Author)

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States
6507245661 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pauline Liang

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305
United States

Emil Siriwardane

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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