Alternative assets under management (AuM) on behalf of pension funds Excludes direct investment in single strategy private equity funds and hedge funds, in other words only funds of funds in these areas have been included.
by the world’s largest alternative investment managers remained unchanged in 2009 compared to the year before at US$817bn, according to global research produced by Towers Watson in conjunction with the Financial Times. The research also shows that around half of all assets managed by these alternative investment managers are managed on behalf of pension funds. The Global Alternatives
Survey covers five alternatives 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.
Carl Hess, global head of Investment at Towers Watson, said: “Institutional investors continue to diversify into the full range of alternative assets, encouraged by the way these strategies have performed. 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 17% of all pension fund assets globally, up from 6% ten years ago.”
An analysis of the top 100 alternatives managers shows that real estate managers dominate, accounting for around 52% of assets (down from 58% in 2008), followed by PEFoF on 21% (20% in 2008), FoHF on 13% (13% in 2008), infrastructure on 12% (9% in 2008) and commodities on 2% (0.5% in 2008).
Carl Hess said: “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. 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.”
Data from the wider survey shows that at the end of 2009, the top 50 real estate managers, FoHFs and PEFoFs managed US$439bn (US$485bn in 2008), US$127bn (US$123bn in 2008) and US$187bn (US$177bn in 2008) respectively. Infrastructure and commodities remain smaller, but are becoming easier for pension funds to access with assets of the top 15 commodities managers more than tripling in 2009 compared with 2008.
Regarding hedge fund and private equity investing, we believe in the ability of highly skilled managers to adapt to changing and increasingly volatile market conditions and to generate good performance for our clients. However, we believe that more larger investors will invest directly in future rather than through funds of funds, particularly due to positive developments on fees, which are increasingly better aligned with investors’ interests. This, and liquidity factors, would account for static fund of hedge fund AuM last year and only modest AuM growth in private equity fund of funds.
We are also seeing greater interest in the new alternative beta opportunities for improving investment efficiency that are now more widely available.”
According to broader research, the majority (51%) of alternative assets managed on behalf of pension funds are invested in North America, while a third are invested in Europe and 9% in Asia-Pacific. In terms of domicile, two-thirds of managers are based in the US, while a quarter are based in Europe with the remainder being based in Asia-Pacific.
Macquarie Group is the largest infrastructure manager of pension fund assets with US$51.6bn (US$44.4bn in 2008) and also tops the rankings, while HarbourVest Partners once again heads the PEFoF table with US$21.0bn (US$22.4bn in 2008). Blackstone Alternative Asset Management again manages the largest proportion of FoHF assets on behalf of pension funds, with a total of US$14.3bn (US$13.5bn in 2008). ING Real Estate Investment Management tops the real estate table with US$32.4bn (US$40.9bn in 2008) while PIMCO retains the leading pension fund commodities manager position with US$ 8.5bn (US$3.4bn in 2008).
D.C.