The Wall Street Journal recently reported that public pension funds in the U.S. are reducing their exposure to equities in favour of strategies that leverage their safest assets – government and high-grade bonds. The State of Wisconsin Investment Board which manages US$78 billion became the first in the U.S. to adopt this type of strategy. It is now set to borrow the equivalent of 4% of its assets. Low interest rates and volatility in equity markets have made it very difficult for pension funds to meet their liabilities – leveraged strategies aim to protect pension assets from the equity market volatility which burned so many back in 2001-2002 and in 2008. However, critics have suggested that pension funds which leverage their assets in this way are opening themselves up to looming inflation and interest rate risk.
Pension Funds Look to Leverage
Burned by equity markets, plan sponsors turn to borrowing to boost returns.
- By: Caroline Cakebread
- March 11, 2010 September 13, 2019
- 12:14