11/07/2011
By Ilonka Oudenampsen
Alternative assets held by pension funds globally increased by 16% in 2010 to $952 billion, according to research by Towers Watson.
The research looked at assets managed on behalf of pension funds by the world’s largest managers, and found their total assets under management (AUM) grew by 12% to $1,904 billion, with half of their assets now being pension fund assets.
The Global Alternatives Survey, conducted in conjunction with Financial Times, covered five alternatives asset classes: infrastructure, real estate, commodities, private equity fund of funds (PEFoF) and fund of hedge funds (FoHF).
Real estate managers account for around 55% of assets, followed by PEFoF at 18%, FoHF on 12%, infrastructure on 12% and commodities on 3%, compared to respectively 52%, 21%, 13%, 12% and 2% in 2009. Pension funds’ real estate assets in the Asia-Pacific region doubled in 2010 and now account for 14% of the total, while 35% is in invested in Europe and 46% in North America.
Of alternative assets managed on behalf of pension funds, 46% are invested in North America, 37% in Europe and 13% in Asia Pacific (compared to respectively 51%, 35% and 9% in 2009). In terms of domicile, 50% of European managers are in the UK; 24% are in Switzerland and 12% are in France.
Craig Baker, global head of research at Towers Watson Investment said: “Institutional investors continue to diversify into the full range of alternative assets, as the benefits of diversification become apparent and certain asset classes become more accessible. The trend away from equity-focused portfolios to more diversified structures is now well established as investors acknowledge the risks associated with an undiversified approach, particularly in light of ongoing economic uncertainty. Indeed, according to our research, allocations to alternative assets have continued to rise and now account for 19% of all pension fund assets globally, up from 5% 15 years ago.
“The case for diversity has been thoroughly tested recently, but those investors that had diversified away from simply holding equities as their main growth asset in the last five years generally performed better than those that hadn’t. Given the ongoing economic uncertainty it is likely diversity will become even more important in the future. While in some cases this could lead to a requirement for higher governance, we think the effort to diversify is worthwhile; while not forgetting the increasing number of lower governance routes to diversity in the market.”
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