US public pension plans that manage hundreds of billions of dollars of assets are increasingly turning to risky leverage strategies as burgeoning private market holdings create cash flow strains.
At least eight very large US public pension funds are using borrowed cash or other leverage strategies, now that the board of Calstrs, one of the largest US retirement funds, this month voted to allow the fund to borrow as much as $30bn, or 10 per cent of its portfolio.
The strategy has risen in prominence as these giant funds have tied up a larger and larger share of their assets in illiquid investments such as private equity, infrastructure and real estate. Using borrowed money and derivatives can help boost returns, rebalance portfolios and give the funds access to cash without having to resort to fire sales of illiquid assets during times of market stress.