The generally high weight on equity and real estate investments in the typical public pension fund portfolio has increased in recent years. Part of that exposure has come from increased  BIS Review 64/2008  5  investment in private equity, real estate investment trusts, and hedge funds. Indeed, some funds have allocated 25 percent or more of their portfolios to these "alternative" categories.
With exposures like those, public pension systems should maintain formal risk-management procedures that are independent of the selection and evaluation of managers and that are carefully designed to minimize conflicts of interest that can weaken the risk-management function. I mentioned earlier that current measures of pension liabilities might be less than fully revealing. Why might that be so?