What type of loans do pension funds generally avoid?

Pension funds typically avoid individual residential mortgages primarily due to their investment strategy and risk profile. These funds are designed to provide long-term, stable returns to support the retirement needs of their beneficiaries. Individual residential mortgages involve smaller amounts and often carry a higher level of risk due to the potential for borrower default and the management complexities associated with many individual loans.

Pension funds generally prefer larger, more stable investments that can provide predictable cash flows over an extended period. They are more inclined to invest in large commercial mortgages, which usually come with contractual payments from larger, more stable entities, or in diversified portfolios of risk-managed assets. Short-term personal loans also present challenges due to their transient nature and higher interest rates associated with high-risk borrowers. Business loans might share some of the same risks as individual residential mortgages, but they can also offer more structured repayment terms tied to the financial viability of an organization rather than an individual person's income and credit.

Investing in individual mortgages would add complexity and higher operational costs for pension funds focused on achieving a reliable ROI in a less administrative burden way. Thus, avoiding individual residential mortgages aligns with the need for prudent and strategic investment practices that pension funds generally uphold.