Evaluating Pension Fund Diversification into Alternatives
As the Chief Investment Officer for a large corporate pension fund, you are tasked with conducting a thorough review of the fund's investment strategy to ensure it aligns with both regulatory requirements and the plan's overall objectives. The fund has historically emphasized fixed income investments, primarily due to the demographic profile of its beneficiaries, which includes a significant number of retirees. However, given the current market environment characterized by low interest rates and an increased lifespan of beneficiaries, you are considering diversifying the fund's portfolio into alternative investments such as private equity, hedge funds, and real estate.
In your analysis, address the following:
- Assess the potential benefits and risks associated with diversifying into alternative investments for this pension fund.
- Evaluate how such diversification could affect the fund's ability to meet its long-term liabilities and obligations to retirees.
- Discuss any regulatory considerations that must be taken into account when altering the investment strategy, particularly concerning asset allocation limits and fiduciary responsibilities.
Your answer should clearly articulate the key points and provide a comprehensive evaluation of the impact of these changes on the pension financial health.