Hit by a “perfect storm” that combined a decade (2000-2009) in which the S&P 500 lost about 1% a year with a rising tide of pension obligations, public workers’ pension funds across the country increasingly began turning to riskier alternative investments (such as hedge funds) in an effort to boost returns and close the gaps in their underfunded plans.
Unfortunately, taking greater risk with such investments hasn’t produced the hoped-for results. In fact, it seems these efforts have only worsened the situation for beneficiaries. The big winners have been the purveyors of such investments, who earn much higher fees than those charged for passively managed funds—such as index mutual funds and ETFs—that invest in publicly available securities.
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