Pension funds across the world have increased their investments into alternative assets by 117 per cent since the financial crisis, almost doubling the total amount of allocations in six years.

New research by the Association of the Luxembourg Fund Industry and PwC has highlighted the pent-up demand for alternative investments from pension funds across the globe, which have now allocated around 26 per cent of their total portfolios to alternatives, just 2 per cent less than allocations to bonds (28 per cent).

The total amount invested in alternatives stood at $9.7trn (€8.57trn) at the end of 2014, showcasing a near two-fold increase on the $4.4trn (€3.89trn) invested in 2008.

Foreign investments made by pension funds have also been rising as the majority of OECD countries (excluding the US), accounted for around 31 per cent of total pension investments on average.

In Europe, the average percentage of pension fund portfolios allocated to overseas markets increased to 34 per cent in 2014, up from 32 per cent in 2008.

The Netherlands, Finland and Portugal all invested the highest percentage of their portfolios overseas in the last six years, with the Netherlands’ foreign investments reaching 76 per cent of the country’s total portfolio in 2014.

PwC partner of the Luxembourg Market Research Centre Dariush Yazdani said the new millennium has “changed the playing field” for pension funds.

“There are significantly more people retiring today than there were even a decade ago and this is putting pressure on pension funds' investment strategies,” he said.

“But even in the midst of new challenges, pension fund managers are facing a future brimming with opportunities. The unique ability of pension funds to focus on long-term investments allows them to absorb short-term volatility while bearing market and liquidity risk through diversification - one of the most effective means of achieving diversification is through foreign exposure.”

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