What If Pensions Funds Grabbed The Reins?

Public and private pension funds in the United States collectively have trillions of dollars in combined assets. They own more than a third of all domestic equity, with stakes in most public U.S. companies, and large holdings of corporate and government bonds, real estate, and infrastructure. They are unique in that they are both very large and have a much longer investment horizon than most other types of investors.

But, with few exceptions, American pension funds do not self-manage the majority of those assets, and they ignore the flexibility that their long-term horizon can bring, experts said. They employ private firms to invest their assets for them, often with a short-term focus and at a high cost. Many of their trustees are political appointees without any experience in finance. And so, instead of being viewed as powerful financial players, with the capacity to initiate deals and lead markets, pension funds act — and are treated by the financial advisors they employ — more like large customers.

"Collectively, pension funds have a huge amount of potential power," said James Hawley, a professor of business at St. Mary's College and an expert in fund management. "For the most part, that power is not being used."

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