Infrastructure, commodities and private equity funds of funds (FoFs) were the fastest growing asset classes among alternatives invested by pension funds around the world last year, according to the annual alternatives survey from Towers Watson.
The survey, conducted in association with the Financial Times of London, showed continued support for alternatives by institutional investor, although the asset consulting firm says investors are being more selective than ever before.
The total pension fund assets invested through the top 100 alternatives managers was steady at $817 billion as at December 2009, however the survey results show some important trends within the alternatives space.
For instance, while real estate remains the most popular alternative asset class, its share of the total for alternatives was down from 58 per cent to 52 per cent.
And while pension funds globally on average have invested 17 per cent of portfolios in alternatives, compared with 6 per cent 10 years ago, private investors still account for most assets among the largest managers. Pension fund assets totalled 48 per cent of alternatives assets, against retail and privately derived assets totalling 52 per cent.
North America continues to account for most assets invested, followed by Europe and then Asia Pacific.
Thanks to the surge of interest in infrastructure, the largest alternatives manager of institutional assets in the world is Australia’s Macquarie Group. Most of the top 10, however, are invested primarily in real estate.
Pension assets in real estate total $424.9 billion, followed by private equity FoFs with $168.7 billion, hedge FoFs with $104.1 billion, infrastructure with $99.2 billion and commodities with $20.2 billion.
Assets of the top 50 private equity FoFs increased 50 per cent in the past year, which was the highest growth rate of the three main asset classes in the alternatives space. Infrastructure, however, increased by 33 per cent to 12 per cent of the total or just under $100 billion. Assets in the smallest asset class, commodities, tripled from about $6 billion to just over $20 billion. There were five commodities managers in the top 100 managers overall for the latest survey, compared with one only the previous year.
Towers Watson said there was a trend away from equity-based hedge funds and away from FoFs as investors looked for better diversification and were more concerned about costs.
But they added that some preferred strategies would require higher levels of governance than simple equity/bond portfolios.
“This will require careful planning and investors should demand a long-term return to compensate not just for higher risk and illiquidity but also greater complexity,” the consultants said.
Top Global Alternatives Managers
| Rank | Manager | Country | Pension assets US$m | Total assets US$m | Asset class |
| 1 | Macquarie | Australia | 51,632 | 92,671 | infrastructure |
| 2 | ING | Netherlands | 32,363 | 92,692 | real estate |
| 3 | JP Morgan | US | 27,771 | 32,431 | real estate |
| 4 | AEW Capital | US | 26,003 | 42,915 | real estate |
| 5 | Morgan Stanley | US | 25,759 | 64,419 | real estate |
| 6 | CB Richard Ellis | US | 24,850 | 34,716 | real estate |
| 7 | La Salle | US | 23,670 | 39,900 | real estate |
| 8 | RREEF | US | 23,339 | 53,883 | real estate |
| 9 | HarbourVest | US | 21,002 | 31,924 | PE FoF |
| 10 | Prudential | US | 20,884 | 22,878 | real estate |
