Survey: Pensions Dive Into Alternatives

(July 12, 2010) — Global research by Towers Watson shows that around half of all assets managed by the world’s largest alternative investment managers are managed on behalf of pension funds, with funds beginning to favor infrastructure and commodities.

According to the study, of the total allocated to alternatives, pension fund assets run by specialist infrastructure managers has risen from 9% in 2008 to 12% in 2009 while commodities managers have seen their allocation rise from 0.5% in 2008 to 2% last year. “Infrastructure and commodities managers have significantly increased their pension fund assets under management during the past year, as investors have become more comfortable with these asset classes and while others have continued to opportunistically add to their allocations,” said Carl Hess, global head of Investment at Towers Watson, in a statement. “However, investors should be very wary of the structure of some of these mandates with careful attention being paid to the ‘net of fees’ proposition, in particular for infrastructure.”

The research also revealed that alternative assets under management on behalf of pensions remained unchanged in 2009 compared to the previous year of $817 billion.

The Global Alternatives Survey spanned five alternative asset classes: real estate; private equity fund of funds (PEFoF); fund of hedge funds (FoHF); infrastructure and commodities and includes rankings of the top managers in each area. The analysis of the top 100 alternatives managers revealed the following percentages per sector:

• Real estate managers accounted for around 52% of assets (down from 58% in 2008)
• PEFoF on 21% (20% in 2008)
• FoHF on 13% (13% in 2008)
• Infrastructure on 12% (9% in 2008)
• Commodities on 2% (0.5% in 2008)

The survey showed Macquarie Group is the largest infrastructure manager of pension fund assets, topping the ranking, with $51.6 billion ($44.4 billion in 2008). Netherlands-based ING Real Estate Investment Management, JP Morgan Asset Management, and AEW Capital Management, LP, and Morgan Stanley followed.

Towers Watson’s survey included 224 investment manager entries (up from 206 in 2008) comprising: 60 in real estate, 60 in fund of hedge funds, 57 in private equity fund of funds, 22 in commodities and 25 in infrastructure.

A recent survey by Russell Investments’ on alternative investing supports these findings, showing that institutional investors worldwide view alternative investments as an effective way to diversity their portfolios, with plans to boost their exposure to these investments in the years ahead. The Russell survey of 119 organizations throughout North America, Europe, Japan and Australia showed that over the next two to three years, pension funds, endowments, foundations and insurance providers expect to increase their allocation to alternative investments by more than a third, to 19% of their total investment portfolios. While real estate, private equity and hedge funds remain the preferred alternative types, the study showed commodities and infrastructure are also expected to make meaningful gains.