Alternative assets growth driven by pension funds
23 June 2008

Written by Sophie Baker

During 2007 alternative assets managed on behalf of pension funds by the world’s largest 99 investment managers grew by 40 per cent to US$822bn from US$586bn the year before, according to research by Watson Wyatt and Global Investor magazine.

The research shows that over half of the top 99 managers are US-based, while over a third are based in Europe. Real estate managers lead the ranking, occupying the top nine positions and accounting for 62 per cent of the assets.

Infrastructure managers were included in the research for the first time this year, and all ten new entrants were ranking the top 99 and account for five per cent of the assets.

Roger Urwin, global head of investment consulting at Watson Wyatt, said: “There is no let up in the demand for alternative assets as pension funds around the world seek to diversify their portfolios and capture alpha through absolute return strategies. This is the main reason for such significant growth of assets, with the larger firms being the main beneficiaries of growth.”

Data from the contributing surveys shows that, at the end of 2007, the top 50 managers within the areas of real estate, fund of hedge funds (FOHFs) and private equity fund of funds managed US$512bn, US$146bn and US$139bn respectively. Infrastructure and commodities remain smaller, but growing alternatives classes among pension funds with the top ten managers in these areas being responsible for US$43bn and US$16bn of assets respectively.

“Changing pension fund needs and globalisation are forcing many asset management firms to innovate and refocus; larger firms, with more alternatives products, are proving to be more successful in this rapidly changing landscape,” commented Urwin.

According to the research 47 per cent of alternative assets managed on behalf of pension funds are invested in North America, 39 per cent are invested in Europe, and ten per cent in Asia-Pacific.

The survey shows that AEW Capital Management is the largest real estate manager of pension fund assets in the world with US$47.4bn, Blackstone Alternative Asset Management manages the largest proportion of FOHF assets on behalf of pension funds, and Allianz SE is the leading pension fund commodities manager with US$7.0bn.