The aim of this exploratory study is to offer insights into why public pension plans might invest in alternative asset classes at levels inconsistent with Modern Portfolio Theory (MPT). Using a case study methodology, the research relies on fieldwork data gathered from archival data sources and in-depth interviews with a broad spectrum of individuals familiar with four Swedish national pension funds. The findings suggest that alternative assets are perceived as important vehicles for improving portfolio diversification, but that the funds’ propensity to invest in them is also influenced by access to certain types of alternatives and information asymmetry. Contrary to expectations, the findings also indicate that investment restrictions have not been perceived as a major constraint for investing in alternatives until more recently, and that political considerations have had limited effects on decisions to invest in alternatives. While these findings are confined to a specific case, they provide a foundation for more systematic studies, aimed at explaining portfolio allocation choices and decisions among public pension funds to invest in alternative asset classes.
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