NEPC’s James Reichert, Senior Director of Portfolio Strategy, sat down with The Wall Street Journal to discuss whether alternative investments have fallen out of favor for corporate pensions. James suggests that in today’s inflationary environment, plans may find it more advantageous to invest in publicly traded investment-grade, high-yield bonds and bank loans, without the added complexity and uncertainty of alternative assets. View the article on The Wall Street Journal’s site here.
Locking up funds for a long period is unpopular now because for the first time in years, easy-to-trade corporate bonds and bank loans offer appealing returns, thanks to rising interest rates. That has upended the retirement calculus for America’s corporate giants, after many spent years chasing nontraditional investments whose managers promised they could earn a lot more than stocks and bonds.
Companies now increasingly want quick access to cash so they can buy higher-yielding bonds or sell off retirement obligations to insurance companies. Long lockup periods on private equity and other private market investments mean they can’t easily unwind those complex bets, though.
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The past couple of years have been rocky for private equity. Benchmark private-equity returns turned negative for the year ending March 31, for the first time since the 2008-09 financial crisis, according to a Burgiss Group index that excludes venture capital.
Today, a closed corporate pension plan can likely get the returns the company wants from publicly traded investment-grade and high-yield bonds and bank loans without the uncertainty and complexity of alternative assets, said James Reichert, senior director of portfolio strategy at investment consultant NEPC.
“You don’t necessarily need it,” he said.
Click here to continue reading the full Wall Street Journal article.