“Pensions have to look at their portfolios and ask, ‘Does it still make sense now that the world has shifted so profoundly?’ and in many cases the answer is probably no,” said Steve Foresti, a senior adviser at Wilshire, a consultant to large pension funds.
“We thought given the significant market changes in light of inflation and interest rates, and the general view that these market changes are likely to persist for at least the intermediate term, now would be a good time to revisit asset allocation,” Mr. Taylor wrote in an email. Possible future scenarios mapped out by Aon included an approximately 50% decline in stock values over three years, without an immediate rebound. Changes to the asset mix could be approved by the council at its June meeting and would then go to the State Board of Administration’s three trustees for a final signoff, the fund said.
Selling stocks is an easy way for pension funds to reduce assets correlated to economic growth. Private-equity investments, which typically lock up money for about a decade, are more difficult and expensive to shed. Some pension-fund officials have said they want to commitPulling back on growth-linked investments could backfire if markets take off again. Money to pay pension benefits must come either from investment returns or from contributions by employers and employees.