Governor Pat McCrory, a Republican, signed a bill in August raising limits on investments in alternatives to stocks and bonds. The Tar Heel state’s $3.4 billion private-equity portfolio has returned about 7 percent over 10 years, almost 4 percentage points below the pension’s benchmark. Real estate investments returned 2.6 percentage points below target. […]The investment bill signed by McCrory raised limits on the percentage of pension assets that can be allocated to alternative assets to 35 percent from 34 percent and lifted the cap on limits placed on categories such as private equity and hedge funds.
As the report notes, Texas and South Carolina have also jumped on the “alternative investments” bandwagon…and gotten burned. The problem is that many of the pension promises made around the country can’t be met without eventually turning to these kinds of high risk, high reward investments. This constant temptation is why we think defined-contribution schemes are the best choice for workers in the long-run.