If a drop in the market were to occur, Keohane explains, pensions would be particularly vulnerable, because their liabilities (the money they have to pay to retirees) are so fixed. He argues that once pensions get to a certain level of underfunded-ness (60-70% funded), it’s extremely hard to dig out of the hole, because they have to earn way more just to catch up. Keohane calls this a “tipping point” from which pension funds can rarely recover. After Harrison presses Keohane for details about how to avoid this slippery slope, Keohane gives rare insight into how he tailors HOOPP’s portfolio to adjust for the non-linear risk that pension funds are subject to. He discusses HOOPP’s investments in real estate, and elaborates on his use of derivatives to enhance (while also restrict) equity exposure.