How do pension funds trade

E

eaglefeather

I can't help but wonder, but how do pension funds trade?, and how would one work into a position such as that? I have to admit I am a retail trader who knows very little of the professional side. Do pension funds outsource their trading to investment banks and prop firms, or do they have their own trading structure? I wonder if someone might hire me just to trade collars.
 
I doubt they trade much, their focus is more on asset allocation/ portfolio management. Just make the fees and dont take much risk, it's a cushy job. You can try to be an execution trader for them, but I don't know if they still need those now
 
I have the impression that pension funds are not focussed on the short term. But are more concerned with how much they have to pay out in 10, 20 or 30 years from now. If that long term horizon is your focus then your "trading style" becomes much more an "investment style". With a focus on lowering the financial risk as much as possible. Whether they do this in-house, or outsource (portion of) it depends on the pension funds.
 
eaglefeather said:
I can't help but wonder, but how do pension funds trade?, and how would one work into a position such as that? I have to admit I am a retail trader who knows very little of the professional side. Do pension funds outsource their trading to investment banks and prop firms, or do they have their own trading structure? I wonder if someone might hire me just to trade collars.
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Pension Funds do not trade. They hired a board of directors. The directors look at their future needs as they have a responsibility to have funds to pay out over a long period of time. They set goals and determine what investments are acceptable. From that, they look for investments that fit their needs by creating buckets to fill. They then put out a Request for Proposal (RFP). They typically hire a manager of manager to evaluate each RFP to determine what hedge fund or manager will fill that bucket. An example would be a RFP for commercial real estate, long/short health care, long only large cap, long only corporate bonds etc.

Here are some examples from HFMInvestHedge Mag:https://hfm.global/hfminvesthedge/investor_searches_status/rfp/page/4/
 
The large funds generally have internal teams managing assets, in addition to allocating some money to external managers. So in that sense, they do 'trade,' ie they're active in the financial markets.
 
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