Investment markets are not what they used to be. In a RiskFirst survey reported on by Pensions & Investments, the vast majority of U.S. pension funds indicated to the National Association of State Retirement Administrators they have abandoned hopes of 8.00 percent return targets and have scaled back those expectations to 7.25 percent.

“There’s wide variations, but there is a fair amount of clustering [among return assumptions in the NASRA database],” Alex Brown, NASRA’s research director, tells P&I. Three-fourths of the state plans have rates ranging from 7.0 percent to 7.5 percent.

During the past decade, the downward shift of returns and aging populations have upended traditional thinking about portfolio construction. The asset mix of roughly 60 percent equities and 40 percent fixed income so many conservative investors are accustomed to is giving way to a new reality — lower returns for each category and even negative returns for a growing segment of the fixed-income market.

Increasingly, pensions and other investors have been turning to alternatives, including real assets such as infrastructure and real estate, to produce consistent cash yields for investment portfolios. Pensions, in particular, like these investments for their ability to match consistent cash inflows to liabilities paid out to pension retirees.

According to the study by RiskFirst, the trend toward cash-flow-driven investments is accelerating.

“The average allocation to CDI eligible assets, such as infrastructure, private and multi-asset credit, has more than doubled since the beginning of 2018,” concludes the study. “This trend is driven by increasing allocations to infrastructure investments and a reduction in traditional return-seeking investments, such as equities.”

In the high-net-worth and family office market, meanwhile, investors also are trending toward cash-flow-driven investments. According to UBS’ Global Family Office Report 2019, alternative investments, including infrastructure and real estate, are the biggest holdings among high-net-worth portfolios.

“The extended period of low interest rates and heightened volatility has sparked an intense search for yield and drive for diversification, and led investors to increase their allocations to alternatives. Over 40 percent of the average family office portfolio is invested in alternative investments.”

Drew Campbell is senior editor of Institutional Investing in Infrastructure.