A spike towards 4percentt would definitely cause a huge wobble in stock markets and other risk asset classes, with attendant scare stories of huge losses and institutional bankruptcies, which in term would scare traders back into bonds.
A lot of money is currently being left on the table... Now then, given people already diversify and already freely invest in similar risk asset classes without limits, wouldn't it make sense to allow investment in an asset class which founded the country and creates economic activity?
Pension funds and endowments typically see venture capital categorically as a high-risk asset class.
Michael Levy: Emerging markets were a high-risk asset class for foreign investors.
This contractual obligation is what makes fixed income a lower-risk asset class when compared with equities.
In the report, FoE claims that pension funds CalPERS and TIAA-CREF also have investments of more than $100m each in palm oil activity, with overseas land and agriculture "widely perceived as low-risk asset classes" for investor portfolios.
If it can't make a return on treasuries it is going to move into higher-risk asset classes, which will drive prices up, compounding the problem.
After you've reduced the risk, then take the cash and diversify beyond the stock market into other lower-risk asset classes.
This ultimately lowers prevailing market valuations and creates a devastating spiral that is hard to escape as the public markets contract and less money is available in the original pension funds and endowments to allocate toward high-risk asset classes.
If the stock market stays healthy, money will continue to be allocated to higher-risk asset-classes like venture capital and private equity.
The principles of risk parity may be applied differently by different financial managers, as they have different methods for categorizing assets into classes, different definitions of risk, different ways of allocating risk within asset classes, different methods for forecasting future risk and different ways of implementing exposure to risk.
