Over the last two decades, the largest U.S. public pensions have shifted a huge share of their portfolios into private markets. A study by Juliane Begenau (Stanford GSB), Pauline Liang, and Emil Siriwardane shows that between 2001 and 2021, alternatives went from 14% to 39% of pensions’ “risky” assets. For every dollar pulled out of fixed income, about $2.60 went into private equity, private credit, real estate, and hedge funds.

The California Public Employees’ Retirement System (CalPERS) is the clearest example. In March 2024, its board approved a plan to increase private market exposure by more than $30 billion, shifting capital out of listed stocks and bonds into private equity and private debt. CalPERS had already admitted that staying mostly out of private equity in the prior decade may have cost up to $18 billion in foregone returns. Over the decade before 2023, CalPERS reports that private equity delivered ~12% annual returns, compared with 8.9% from public equities and 2.4% from fixed income. Gaps like that, compounded, force a change in asset allocation.

Begenau and co‑authors argue that the main driver is beliefs about expected returns, not blind risk‑taking. Pension managers increasingly believe alternatives can deliver alpha over public markets. The team examined capital market assumptions from major investment consultants and found that consultants’ expected relative returns for alternatives have risen by roughly 68 basis points since 2001. In their model, that “consultant effect” is large enough to explain the entire increase in alternatives’ portfolio share. When the inputs say private equity and private credit will outperform, the “optimal” policy portfolio naturally tilts toward them.

History and experience matter too. The study shows that funds which loaded into equities late in the 1990s, just before the dot‑com bust, later shifted more aggressively into alternatives than peers that moved earlier. Poor realised returns in public stocks made private markets look more attractive in the 2000s. The timing of a fund’s push into equities explains about one‑fifth of the cross‑sectional differences in how much plans increased their alternative allocations from 2002 to 2021.

Supply has changed as well. The share of alternatives in global risky assets has grown from about 2% in 2000 to 8% in 2020, according to the same research. There are simply more private equity, credit, real estate, and infrastructure funds targeting large institutions, with better access and more structures tailored to pensions. As the product universe has expanded, it has become easier—operationally and politically—for boards to justify larger private allocations.

The data also show herding. Public pensions tend to hold similar mixes of alternatives and stocks to nearby peers, even after controlling for plan size and funding. The most plausible explanation is information flow: executives share results, compare line‑ups, attend the same conferences, and gradually converge on similar allocations. At the same time, the authors find little evidence that “desperation for returns” alone explains the shift. Changes in funding status from 2002 to 2020 account for only about 1% of the move into alternatives. In many cases, total risky exposure has not increased; instead, funds are swapping public risk (listed equities and credit) for private risk (illiquid, less transparent assets with higher expected returns).

The conclusion from the institutional side is clear. Large public pensions have deliberately moved away from a pure public 60/40 model toward a mix where alternatives are a central pillar, guided by data, consultant assumptions, and real performance history. Retail investors, especially in Canada, are still largely confined to public‑only portfolios because the infrastructure, regulations, and distribution for private markets are built for institutions, not individuals. Venturevest exists to close that gap. Bringing institution‑grade access, education, and monitoring for private market funds to everyday Canadian investors.

Based on and informed by: “Why More Public Pensions Are Taking a Chance on Alternative Investments” — Stanford Graduate School of Business, July 22, 2025.