Forbes took a look at How Pension Funds Make Investing Too Complex. The issue was hedge funds and private equity funds that tend to be expensive, opaque or both. These types of direct investments also tend to be illiquid in terms of having long waiting periods before investors can get their money out.

The Iowa Public Employees' Retirement System drew a lot of heat in the article for appearing to side with KKR on keeping fees confidential. CalPERS drew a lot of attention of course for its decision to get out of these types of funds over the next year. We made a little fun of this at the time in noting that they bought in after a run where these pools of capital did relatively well and now they are divesting after a run where these pools of capital have done relatively poorly.

This is a meaty subject with a lot of moving parts.

At a very high level these types of funds are alternatives designed to not look like the stock market and generally speaking they usually don't look like the stock market. These funds were hot in the last decade when domestic equity stunk and now they pale next to the rocket ship returns of the S&P 500 for the last five and a half years. Years of poor equity performance as occurred in the last decade have happened other times in the past and should be expected in the future. This is not a prediction, this is normal market function.

The next time one of those periods comes along people will disparage index investing, seek out alternatives and suggest huge weightings to them. This repeats over and over with whatever is hot. As we've talked about quite a few times, how many articles did you read four years ago suggesting 20-25% in gold?

I've been writing about moderate allocations to alternatives for more than ten years and in that time the ETFs space has evolved to offer countless types of alternative strategies. Another evolving aspect to the conversation are models being built that are comprised of ETFs; some models include alternatives, many do not but I would bet that the next time alternatives become popular holdings more articles will suggest huge weightings to them and more investment models will be created that allocate to them.