Summary of The Future of Pension Management

From 1965 to 2014, the S&P 500 posted an average annual return of 9.8%. The 10-year US Treasury bond gave investors 6.7% per year. In that environment, running a pension fund – and keeping participants happy – was simple. But the upcoming 50 years will not be as kind to pension managers. The rate of 3% economic growth over the past half-century will likely fall to 2% in the future. The 8.5% annual returns that pension managers once enjoyed will dip to 5.5%. Plan participants will have to contribute more or receive less.

Pension funds, which hold $30 trillion in global assets, are encountering daunting trends. Robust returns will prove elusive when pollution, water scarcity, climate change and food shortages challenge sustained economic growth. Developed nations face aging populations and tepid growth. Bubbles, crashes and volatility shake the markets. The divide between society’s rich and poor is widening.

Pension funds must provide secure retirements to hundreds of millions of beneficiaries. Pension plans may be the only organizations poised to address such challenges. Unlike most shortsighted investors, pensions have “a fiduciary duty to invest...