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Article

Alternative Investments in Defined-Contribution Retirement Plans: Opportunities and Concerns

Stephen C. Sexauer and Laurence B. Siegel
The Journal of Retirement Fall 2014, 2 (2) 45-54; DOI: https://doi.org/10.3905/jor.2014.2.2.045
Stephen C. Sexauer
is chief investment officer for the U.S. multi-asset group at Allianz Global Investors in New York, NY.
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  • For correspondence: stephen.sexauer@allianzgi.com
Laurence B. Siegel
is the Gary P. Brinson Director of Research at the CFA Institute Research Foundation in Charlottesville, VA, and he lives and works in Wilmette, IL.
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  • For correspondence: lbsiegel@uchicago.edu
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Abstract

Alternative assets—those other than stocks, bonds, and cash—are starting to play a role in defined-contribution (DC) retirement plans and particularly in target-date funds, which are marketed to most retirees as complete investment solutions. The authors ask whether this is a good idea and outline the conditions under which alternatives can sensibly be used as a component of DC plans. They conclude first that risk estimates for alternative assets need to be adjusted upward and expected return estimates downward. Second, the liquidity needs of the fund and of the plan participants should be carefully considered when investing some of the participants’ money in alternatives. Third, the total invested in alternatives on behalf of plan participants should not be large.

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The Journal of Retirement: 2 (2)
The Journal of Retirement
Vol. 2, Issue 2
Fall 2014
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Alternative Investments in Defined-Contribution Retirement Plans: Opportunities and Concerns
Stephen C. Sexauer, Laurence B. Siegel
The Journal of Retirement Oct 2014, 2 (2) 45-54; DOI: 10.3905/jor.2014.2.2.045

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Alternative Investments in Defined-Contribution Retirement Plans: Opportunities and Concerns
Stephen C. Sexauer, Laurence B. Siegel
The Journal of Retirement Oct 2014, 2 (2) 45-54; DOI: 10.3905/jor.2014.2.2.045
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  • Article
    • Abstract
    • HISTORY, THEORY, AND IMPORTANT CONCEPTS
    • MPT WITH ALTERNATIVES
    • IF ALTERNATIVES ARE GOOD FOR DB PLANS, WHY NOT FOR DC PLANS?
    • BEST PRACTICES FOR ALTERNATIVES IN DC PLANS
    • CONCLUSION: RECOMMENDATIONS FOR INVESTORS AND THEIR FIDUCIARIES
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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