The reason governments don’t do this is that they are not actually indifferent to investment volatility. When asset values fall, governments come under pressure (and, in some states, court order) to increase their annual contributions to pension funds to shore them up. Typically, those stock price declines come at the same time that a weak economy is pushing tax receipts down and demand for government services up. A government that does not make those shoring-up contributions can end up in a downward spiral, where the pension fund’s investment projections rely on investments that do not exist, and the pension system’s funding gap continues to grow indefinitely.

In the last few years, the need to shore up pension funds has been a key stressor on state and local budgets. In some places this has led lawmakers to cut back on pension benefits, while in others, the benefits are protected by constitutional provisions or the political power of public employees. On the other hand, periods of excellent returns on pension fund stock investments can create political pressure for pension benefit increases, which many jurisdictions handed out as stock prices soared in the late 1990s — and then came to regret as the tech stock bubble burst.

The volatility of stock returns is why pension funds invested in bonds in the first place. And it’s most likely a driver of the recent rush toward alternative investments, which went from 11 percent of pension portfolios in 2006 to 23 percent in 2012, according to Pew; nearly the entire shift has come at the expense of stocks.

The theory with alternatives is that they earn a premium return in exchange for the difficulty of investing in them. Small investors lack easy access to these asset classes, and the investments are often illiquid: You can’t call up your broker and sell an office building in 15 minutes to raise cash. As a result, by investing in alternatives, pension funds should be able to get either returns similar to those of equities at a lower risk, or higher returns at a similar level of risk.

That’s the theory. The evidence on alternative investments is considerably more mixed. Hedge funds are supposed to pursue equity-like returns with lower levels of risk. But as Antti Ilmanen of the investment manager AQR Capital Management describes in his guide “Expected Returns on Major Asset Classes,” the historical returns of hedge funds are most likely overstated because of reporting biases. Hedge funds don’t have to report their performance to public databases, and are more likely to do so when returns are good.

They often engage in strategies that produce modest regular returns at the expense of rare catastrophic losses, which may make their track records look misleadingly strong. And though skilled fund managers can identify opportunities for above-normal returns without increased risk, a rush of investment capital into hedge funds has pushed those average “alpha” returns (that is, returns after adjustment for risk) down over time.