Question

Pension funds are primarily interested in investing in venture capital because:

a) They want to create more jobs in their state

b) They want to increase the overall intellectual property of the United States

c) Over the past ten years pension fund returns have exceeded the minimum amount of returns they need to pay their pension obligations.

d) Over the past ten years pension fund returns have been less than the minimum amount of returns they need to pay their pension obligations.

e) The stock market has returned in excess of 12% in 2017.

Answer 1

Answer is d) Over the past ten years pension fund returns have been less than the minimum amount of returns they need to pay their pension obligations.

Pension funds generally invest in less risky and low return assets like bonds and stocks. though stocks are more riskier than bonds but it is less riskier than other assets like private equity and venture capital and gives higher return than bonds.

pension funds must earn a minimum required return which will cover their pension obligations. if they are not able to earn that minimum return by investing in stocks and bonds then they need to look out for other assets which will give them higher return. investing in Venture capital is more riskier than stocks and bonds but it also gives higher return. due to lower returns over past ten years they are interested in investing in Venture capital.