Randy Myers for CFO.com has a very good article on alternative investments for pension funds: “Casting for Returns: To juice up their sagging portfolios, pension fund managers are seeking alternative investments.” The article suggests that ERISA plan fiduciaries have a duty at least to consider alternative investments and how they might fit into the overall portfolio. The article points out the illiquidity of such investments as well as the high expense ratios associated with them, but offers these precautions for their use:
[T]ake a long-term approach to these investments; avoid funding them with assets that may be needed short-term to meet pension liabilities; avoid making large bets on any one deal or manager; and, to mitigate transparency risk, spend a lot of time with your managers to understand their investment philosophy and process (and be sure they stick with them).