These investors think that they are backstopped by the American people. Having found themselves in a bad position, these investors are shifting their assets into riskier assets knowing that if they screw up someone else will pick up the bill. Nope, I'm not talking about wall street banks, but public pension funds. As the New York Times states:
But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.
Meanwhile, more and more corporations have been moving their assets into safer assets. On top of that, these pension plans have very optimistic return expectations.
Most have been assuming their investments will pay 8 percent a year on average, over the long term. This is based on an assumption that stocks will pay 9.5 percent on average, and bonds will pay about 5.75 percent, in roughly a 60-40 mix.
Considering the current valuation of the market and the outlook for GDP growth, 9.5% equity return expectations are quite unrealistic. They'll be lucky to get 5%. But it's okay, the people living in these municipality will pay for the rest.