CEM Benchmarking last year published a study, sponsored by NAREIT (my employer) that analyzed the actual investment results achieved by more than 300 U.S. pension funds. For that study they carefully grouped investments in 186 different asset categories into 12 broad asset classes, similar within each class but different across them. The study is available for download at https://www.reit.com/investing/industry-data-research/research/cem-benc….

With respect to tactical asset allocation (TAA) strategies, here's what CEM Benchmarking found:

"Hedge funds and TAA programs are all highly correlated (rho~0.9 on average), and display moderate excess returns, to U.S. stocks, large and small cap. ... External active TAA programs, hedge funds, and hedge funds-of-funds...have low betas with respect to U.S. stock and are highly similar in their performance, allowing for aggregation that does not bias our results. We include all...in one aggregate asset class called TAA/hedge funds."

With respect to performance, CEM Benchmarking found that the TAA/hedge fund asset class was the WORST performer over the 14-year available historical period (1998-2011), with actual net returns averaging just 4.77% per year--worse than all four categories of fixed income, all three categories of stock, and all three categories of real assets as well as private equity. In terms of gross returns, TAA/hedge funds beat out only one category of fixed income, but investment costs averaging 125.1 basis points per year (second only to private equity) pulled them into solid possession of last place.

I, too, look forward to the rest of the series, and hope that you'll address why anybody would invest in the institutional, DB-oriented version of these products when their performance has been so consistently terrible for such a long time. Thanks!