Max Whittaker/Getty Images
The California Public Employees' Retirement System building in Sacramento, California.
Last year, I wrote about Calpers, the big California pension fund ($235 billion), and its problems with conventional investment strategies:
The investment environment for pension funds isn't actually very good right now. Bonds are yielding historically low rates and the stock market is bucking around like an old Ford pickup truck on a back road in Texas. The Federal Reserve has done everything it can to push investors into riskier assets, like stocks, but so far, the markets haven't been able to maintain any kind of sustained rally.
This means that pension funds are increasingly diversifying into high-risk/high-return stuff, like hedge funds and private-equity. This is an oversimplification, but hedge funds try to make money even when markets are going south, while private equity invests in startup companies and gets involved in the turnarounds of underperforming established ones. The payoffs can be big. But so can the losses.