Balancing Risk and Return: Public Pension Plan Allocations in a New Fixed Income Environment
By: Som Priestley, Christopher Tarui, and Ryan Wagner, T. Rowe Price
Our latest five-year capital market assumptions include expected bond returns that are considerably higher than those seen over the past decade. We observe U.S. public defined benefit plans may be accepting more volatility in their portfolios than is needed to achieve their expected return targets.
Key Insights
- The investment environment has changed since the U.S. Federal Reserve began its last tightening cycle in 2022. Fixed income yields have risen substantially.
- Our latest five-year capital market assumptions include expected bond returns that are considerably higher than the levels seen over the past decade.
- We believe U.S. public defined benefit plans may be accepting more volatility in their portfolios than is needed to achieve their expected return targets.
About the authors: Som Priestley, CFA, Regional Head of Multi-Asset Solutions, is head of Global Investment Solutions, America and a portfolio manager in the Multi-Asset Division. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.
Christopher Tarui, Head of Global Institutional Alternatives Distribution, U.S. Consultant Relations, and OCIO, is the head of U.S. Consultant Relations with the Americas division of T. Rowe Price, the organization responsible for the firm's institutional business in North America. In the Americas division, his responsibilities include OCIO and global alternatives distribution. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.
Ryan Wagner, CFA, is an Institutional Client Service Executive in the Americas division, the organization responsible for the firm's institutional business in North America. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.
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