Pension Fund
A pension fund is an institutional investor that manages assets to pay retirement benefits to plan participants.
Allocator relevance: A major allocator segment with strong governance, liability-driven constraints, and often large ticket sizes.
Expanded Definition
Pension funds invest to meet long-term liabilities. Their portfolios are shaped by funded status, contribution flows, liability duration, and regulatory requirements. Many pensions allocate heavily to alternatives, but liquidity and risk constraints remain critical because benefits must be paid through cycles.
Decision processes are typically formal: investment committees, external consultants, policy mandates, and extensive diligence.
How It Works in Practice
Pensions set strategic asset allocation, hire managers, monitor performance, and rebalance. They often evaluate risk through asset-liability models and enforce risk budgets and concentration limits.
Decision Authority and Governance
Authority typically sits with a board or IC, with CIO/staff executing and consultants supporting. Governance can be slower but predictable, and documentation standards are high.
Common Misconceptions
- Pensions can take unlimited illiquidity.
- Pensions always prefer large established managers only.
- Pension decision-making is purely performance-driven (liability and policy constraints dominate).
Key Takeaways
- Liability profile drives mandate and liquidity constraints.
- Governance is structured and diligence-heavy.
- Risk management is central to manager selection.