Increased risk-taking by lifecycle funds

Lifecycle funds, also known as target-date funds, are designed to follow a glide path, gradually reducing investments in risky assets as investors approach retirement. However, we document that Australian lifecycle funds have, on average, increased growth asset allocation over the past decade, shifting the glide path upward. This trend deviates from the expected risk-reduction strategy by lifecycle funds and is particularly pronounced in retail funds with lower initial risk exposure. The shift can be attributed to lifecycle funds catering to investors' return-chasing and the market perception that some lifecycle funds are overly conservative. • Australian lifecycle funds respond to investors' return-chasing behavior by increasing systematic risk exposure. • Over the past decade, they have progressively allocated more assets to growth investments. • This trend is particularly evident in retail funds and those that initially maintained lower risk levels.