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Alternatives

Investors ‘Double Down’ on Alts Amid Market Turmoil

Market concern is increasing investors’ appetite for alternative assets.
By Michael Katz

Despite a slowing global economy and geopolitical uncertainty, the alternative assets industry continues to grow. In fact, according to a report from financial data and information provider Preqin, investors are doubling down on alternatives in order to provide returns in difficult times.

“The position of the market cycle is still at the forefront of investors’ minds—even more so in 2020 as we see major stock indices record sizeable losses,” Nicole Lee, Preqin’s head of content, said in a statement. “But if anything, this concern is only increasing their appetite for alternative assets. … Choppy waters are ahead, and the industry is not immune to trouble, but for now investors are still seeking alternatives.”

Assets under management grew to more than $10 trillion last year as investors poured capital into alternatives. The survey by Preqin found that 71% of investors in each alternative asset class felt performance met or exceeded their expectations in 2019. And at least 77% of investors in each asset class said they will maintain or increase capital commitments in 2020 compared with 2019. And in the longer term, at least 81% said they will keep or raise their allocations.

Although high asset pricing is a concern for investors in most asset classes, the Preqin survey indicates that investors are still sticking with alternatives. “Given the historical evidence of returns through good times and bad, this strategy may well turn out to be justified,” the report said.

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In private equity, 87% of respondents said their investments met or exceeded their return expectations in 2019, and the same percentage of investors in infrastructure said the sector’s returns met or exceeded expectations. Natural resources had the lowest percentage of investors saying the returns were at or above what they expected, but the category was still relatively high at 71%.   

According to the findings of the survey, the average target allocation among institutional investors was 12.9% for hedge funds, 11% for private equity, 9% for real estate, 6% for private debt, 4.5% for infrastructure, and 3.5% for natural resources.

Environmental, social, and governance (ESG) concerns seem to have a low priority among the alternative investors, despite a large majority (79%) of those surveyed saying that ESG funds tend to perform as well as or better than non-ESG funds. Nearly a quarter (23%) said ESG funds typically out-perform non-ESG funds, and 56% said ESG funds tend to perform the same as non-ESG funds, with only 21% saying they underperformed non-ESG funds.

Nevertheless, 42% of those surveyed said they do not consider ESG principles during fund evaluation, with only 9% saying they frequently reject a fund because of an inadequate ESG policy.

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Home > News > Asset Management Culture > More Public Plans Ramp Up Social Distancing Because of Coronavirus
Asset Management Culture

More Public Plans Ramp Up Social Distancing Because of Coronavirus

Plans in Massachusetts, Mississippi, and other states assure retirees that benefits won’t be delayed, but suspend counseling appointments. 

By Sarah Min

More public pension plans in the US are ramping up social distancing measures this week in response to the COVID-19 pandemic. 

A number of retirement systems in states such as Massachusetts, Mississippi, Texas, and Washington are mandating employees to work from home, suspending guest visits, or conducting retirement counseling via telephone.  

In Washington, which has the highest number of fatalities to date from the coronavirus, the state Department of Retirement Systems said it closed in-person visits and services starting Tuesday.

At last count, the state had roughly 900 cases and about 50 deaths from the disease, which quickly spread in nursing homes. That’s followed by New York, which has 10 deaths, and California, which has eight. 

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Email and telephone services in the Washington pension plan will continue on a regular schedule, but the fund warned plan participants that it may have difficulty responding because of the high volume of phone calls. 

In Mississippi, the Public Employees’ Retirement System of Mississippi (PERS) on Monday suspended guest visits indefinitely to its building in Jackson. PERS will continue to pay benefits and process applications. But it encouraged its 335,000 members to hold off on calling unless they’re waiting on paperwork or are retiring before July 1.  

“We are conducting that work and handling operations while remembering that the health and well-being of our employees and members is of the utmost importance,” PERS Executive Director Ray Higgins said in a statement. 

In Massachusetts, employees in the Massachusetts Teachers’ Retirement System did not report to their workplace Monday or Tuesday, as part of an executive order from Gov. Charlie Baker that all non-emergency public employees work from home. The state pension system assured retirees there would be no delay in benefit payments. 

In Texas, which declared a state of emergency over the weekend, the state pension plan said Monday that most of its staff members will work from home. The Texas Retirement System will also increase space between workers who continue to come into the office. 

TRS will also increase efforts to disinfect the office and cancel all immediate air travel. The fund will close its door to in-person counseling appointments through the end of the month. But all annuity checks, benefits, and health care forms will be managed remotely.

The coronavirus impact on markets, along with dropping discount rates, erased $71 billion in funding from the 100 largest corporate pension plans in the US in February, according to actuarial firm Milliman. The funded ratio—which fell to 82.2% from 85.5%—tumbled to its lowest level in at least three years.

The stringent measures are in response to increasing calls from health care officials to flatten the curve, referring to the practice of social distancing to slow the spread of disease. Experts say the application will help hospitals not get overwhelmed with the rapidly growing number of cases. 

A number of businesses outside the pension world also temporarily closed storefronts in response to the pandemic. Apple, Everlane, Gap, Nike, Nordstrom, Sephora, and dozens of other retailers have shuttered their doors this week. 

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Possible CalPERS Coronavirus Case Forces Investment Meeting Cancellation

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February Volatility Wipes Out $71 Billion in US Corporate Pension Funding

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