Over the last 50 years public pensions have gone from negligible equity exposure to averaging over 65% equity exposure with another 10% in alternative investments and only 25% remaining in bonds before the latest down turn.

fixed-income-pct

equities-pct

This is going to hit the states and municipalities the hardest over the next 20 years. Be very careful with long dated municipal bonds and municipal pensions. It will be important to watch the first bankruptcies of smaller municipalities to see how pensions and bond holders are treated and how the case law develops. Vallejo, CA is in the vanguard, having declared bankruptcy and successfully reduced its pension obligations (in initial court ruling anyway).

Source: A Giant Experiment?