The worrying Increase in "Alt" investments in Pensions.

A

AJAM

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From RTE today

www.rte.ie

Total value of Irish pensions fell almost 16% in 2022

The total value of Irish pensions fell by almost 16% last year, according to new figures.
www.rte.ie www.rte.ie
"The study shows that since 2002, overall equity allocations have shrunk from 50% to 42%, while the allocation to bonds has decreased from 38% to 32%. Allocation to other assets, such as property and other alternatives, has increased from 9% in 2002 to an estimated 23% at the end of 2022."

I've noticed pension funds steadily increasing their exposure to Alt investments and I think it is a terrible idea.
Pensions love them, because they allegedly have lower volatility. But this is just an illusion. In downturns, Alts simply don't mark to market. In effect they pretend that the value of the fund is higher than it is> if you actually went to sell it on the market the values would be much lower. But as long as they don't sell they can pretend for as long as they hold out. Some big fund and fund managers have been caught out by this 3 card trick.

My thesis on Alts is the following
  • They don't have long historic returns that you can measure against (unlike stocks and bonds)
  • The alleged reduction in volatility is actually an illusion
  • The really good alt funds are closed to investors, the crap they can't shift they sell to pension funds
  • Fees are probably massively high and not transparent
  • There is no reason that they should (before fees on average) perform differently to stocks
  • They are less liquid which brings liquidity risk
  • They are less transparent on financials - they don't have the same reporting standard as public companies do
  • You should stay away from them unless you have some insider information as to why they would outperform the stock market
 
Gotta chase them yields!

Is this a result of low interest rates just boosting the value of conventional equity far beyond what was previously considered a reasonable price for their dividend//income? Or is it the worry about corporate debt crashing the bond market? I doubt this all psedo-investments, could be forestry and other long income ventures.
 
Neither. They are looking for uncorrelated assets with low volatility. Which is a good thing to do.
The problem is that Alts are only pretending to be uncorrelated.
 
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