Fiduciary Magazine

Mebane Faber, the portfolio manager at Cambria Investment Management, has published a white paper which addresses the current underfunding of pension funds and the possibility of pension funds underperforming not only targeted returns of 8% but also the risk-free rate of 4%.  The reason for this underperformance is that pension funds are decreasing their exposure to bonds and increasing their exposure to equities and other illiquid assets.  While this new asset weighting has the potential to generate targeted returns of 8%, it also has the potential to generate negative returns due to increased return volatility.

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