Institutional Investors

Ohio Police and Fire add leverage


Trustees at the Ohio Police and Fire Pension Fund recently approved plans to move forward with adding leverage to their overall portfolio as a way to reduce portfolio risk via a technique called "levered risk parity".

The idea is that investors reduce the traditional allocation to equities so that diversification endures via a more equally-weighted allocation and then leverage is used to increase the return of the overall investment portfolio.

Critics of the practice, including investment consultants, say that due to higher allocations to fixed-income, the levered risk parity portfolio will be more sensitive to interest rate movements than