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U.S. retirement plans in Pensions & Investments’ latest annual survey reported positive gains in assets for the third year in a row, despite considerable market volatility.

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After years of rapid growth as pension funds have built their alternative asset classes from scratch, those allocations have now settled a bit and sponsors say their discussions have evolved to topics around the construction of those existing portfolios, said Aaron Chastain, partner and corporate solutions leader at investment consultant NEPC.

“So we’ve got a private equity book. How do we make sure we re-up with strong GPs? How do we think about trimming our roster in some circumstances?” said Chastain.

In private debt, for example, a few years ago direct lending was a much smaller subset of investment managers.

“It was relatively easy to choose strong managers. Expected returns were all very similar,” said Chastain. “Now we’re focused a lot more on the portfolio construction aspect of whether you want regular direct lending, or are you thinking about other types of strategies that have come to market a little bit more specialized and nuanced? That may be more appropriate going forward, have a better return opportunity.”

Plan sponsors are much more focused now on manager selection, he said.

“With a lot more players in the space, it’s going to be very important to make sure you’ve got strong underwriting capabilities and you’re not going with covenant-lite managers that may be newer entrants and don’t have as much negotiating leverage. That’s where the focus is. It’s more to looking at within alternatives, rather than, ‘Let’s just continue to increase them at all costs.’”