Nobel prizes have been won in pursuit of the simple fact that diversification is a good idea. But there are times when it seems like an awful idea. For big pensions, now may be one of those times. The Economist takes a look at the movement for institutions to be "more like Yale," that is more, more diversified across asset classes. It seemed like a great idea and helped ignite the movement to acquire assets uncorrelated with the stock market. But in the short term anyway, it's not working out that way.

There are two problems. One is the fact that so many asset classes were fueled by low rates, which encouraged the use of leverage to buy into lots of asset classes and created lots of correlation. Private equity was fueled by low rates, as was the stock market. The problem is the relative illiquidity of certain assets (of the credit variety). In general, diversification has not been kind to pensions. But it's hard to argue with the concept. The search for uncorrelated alpha is still very much in place.

For more:
- here's the article

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