NEW YORK (Reuters), Despite record assets from sovereign investors, the U.S. pension funds will have to change to more aggressive investments strategies to meet funding needs in the future.

Global SWF, a sovereign investor specialist, stated that the average difference in assets and liabilities of U.S. pension funds (known as the “funded ratio”) is less than 75%.

According to Diego Lopez from Global SWF, in order for returns to be higher, investors will have the opportunity focus on other assets such as private equity or private credit.

“Certain pockets of real assets including logistics properties and infrastructure may also benefit from increased interest, and hedge funds will continue to be an important part of US [public pension funds’] portfolios.”

Globally, assets held by public pension funds and sovereign wealth rose to $31.9 trillion in 2021 thanks to an increase in stock and oil prices. This was a record for investments and the highest in many years, Global SWF stated in a report.

This means that pension funds have greater assets available to pay future liabilities.

The California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund manager, has grown its assets by more than $92 Billion in its fiscal year ended June 20,21 according to their 2020-21 financial reports.

The funded ratio for its Public Employees Retirement Fund rose to an estimate 80% from 70% at the beginning of last year. CalPERS declined comment.

Global SWF reported that the U.S. average for funding ratios, which is a calculation of public pension funds’ respective actuarial valuations of assets and liabilities, remains below 75%. However, there has been a $1.3 trillion shortfall.

According to the report, “To make it worse, we expect the working population to decline from 64% and 57% by 2021,” which will likely exacerbate the gap in funding.