Alternative investments continue their march, and are now being added to target-date funds.
The Wall Street Journal reports the trend is mainly apparent among smaller players—companies including Manning & Napier Inc., Principal Financial Group and AllianceBernstein—that are seeking to “differentiate themselves and find a place in a market that is dominated by just a few players,” Lori Lucas, defined-contribution practice leader at investment consulting firm Callan Associates Inc., told the paper.
In contrast, the Journal notes that Fidelity Investments, Vanguard Group and T. Rowe Price Group Inc., which manage more than 70% of the assets in target-date mutual funds, haven’t embraced hedge-fund-like investments. At Fidelity, “we continue to evaluate opportunities” in such funds but have no immediate plans to include them, Mathew Jensen, director of the firm’s target-date strategies, said.
The news comes as the nation’s second-largest pension fund, the California State Teachers’ Retirement System, considers a significant shift away from some stocks and bonds and towards non-correlated asset classes amid turbulent markets world-wide.
It’s one of the most aggressive moves yet by a major retirement system to protect itself against another downturn. Top investment officers of have discussed moving as much as $20 billion, or 12% of the fund’s portfolio, into hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund.
“The new tactic—called ‘Risk-Mitigating Strategies’ in Calstrs documents posted on its website—was under discussion for several months as the fund prepared for a scheduled three-year review of how it invests assets for nearly 880,000 active and retired school employees,” according to the Journal. “But the recent volatility around the world has provided a fresh reminder of how exposed Calstrs’ investments are when markets swoon.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
