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Alternative investments not right for all plans

Date: Thursday, February 8, 2007
Author: Craig Sebastiano, Benefits Canada

Switching to a new and advanced investment strategy could potentially backfire on pension plans without strong governance models, according to Watson Wyatt.

“The quick growth of alternative investments, such as hedge funds, private equity and infrastructure, might lead some to conclude that everyone can benefit from such tools, but that is not the case,” explains Carl Hess, the consulting firm’s director investment consulting in North America.

 Plans will need to devote a lot of resources to managing and monitoring their investments in order to take advantage of alternative investment opportunities.

“Alternative investments will pay off consistently only for well-governed organizations,” he says. “To delve into these investments before putting the needed governance in place is putting the cart before the horse.”

Driven by the need to better align their investment strategies with long-term pension liabilities, many plan sponsors are revisiting their fund’s risk profile, restructuring their investment policies and looking for new ways to produce higher returns.

Hess says that actively overseeing the investment process is critical to a successful outcome.