During 2007 alternative assets managed on behalf of pension funds by the world’s largest 99 investment managers grew by 40% to $822 billion from $586 billionn the year before, according to the latest Global Alternatives 99 research produced by Watson Wyatt in conjunction with Global Investor magazine. According to the research, over half the top 99 managers are based in the US, while over a third are based in Europe. Real estate managers lead the ranking, occupying the top nine positions and accounting for 62% of the assets. Infrastructure managers were included in the research for the first time this year and all ten new entrants were ranked in the top 99 and account for 5% of the assets.
“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. Other features of the year were the increasing concentration and ongoing consolidation in the industry as well as the rise of infrastructure as an asset class,” says Roger Urwin, global head of Investment Consulting, Watson Wyatt.
Data from the wider survey 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 (PEFoFs) managed $512 billion, $146 billion and $139 billion respectively. Infrastructure and commodities remain smaller, but growing alternatives classes among pension funds with the top 10 managers in these areas being responsible for $43 billion and $16 billion 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,” adds Urwin.
According to the research, the majority (47%) of alternative assets managed on behalf of pension funds are invested in North America, while 39% are invested in Europe and 10% in Asia-Pacific. In terms of the domiciles, North American managers account for 63% of total assets, while UK and continental European managers account for 18% and 12% respectively. Asia Pacific is represented by 11 managers from Australia and Hong Kong and which account for 7% of total assets.
“The movement of assets into alternatives has continued unabated despite the high fees and costs and the mixed ability of managers to deliver good performance. There are signs of change as we move into a different market environment where managers will have to work harder to justify their charges. The trends we see are: more need for transparency, particularly the separate identification of alpha and beta; an increased focus on risk; and the increased appetite for direct investment in private equity and hedge funds,” says Urwin.
In terms of managers included within the survey, AEW Capital Management is the largest real estate manager of pension fund assets in the world with $47.4 billion, while HarbourVest Partners tops the PEFoF table with $20.1 billion. The survey also reveals that Blackstone Alternative Asset Management manages the largest proportion of FoHF assets on behalf of pension funds, with a total of $15.4 billion. Macquarie Group tops the Infrastructure table with $20.1 billion while Allianz SE is the leading pension fund commodities manager with $7.0 billion.