Research Shows Pension Funds Are Biggest Owner of Alternatives Among Institutional Investors

Graphs and numbers

New research from Towers Watson reveals that pension funds are the largest buyer of alternative investments among institutional investors (a designation that includes insurance companies, banks, endowments, etc.).

The research also details the rapid rise of alternatives as a major part of pension fund portfolios—globally, alternatives make up 18 percent of pension portfolios. That number has more than tripled since 1999, when pensions allocated 5 percent of assets toward alternatives.

From HedgeCo.net:

The research — which includes data on a diverse range of institutional investor types — shows that pension fund assets represent a third (33%) of the top 100 alternative managers’ assets, followed by wealth managers (18%), insurance companies (9%), sovereign wealth funds (6%), banks (3%), funds of funds (3%), and endowments and foundations (3%).

“Pension funds continue to search for new investment opportunities, and alternative assets have been an area where they have made, and continue to make, very significant allocations. While remaining an important investor for traditional alternative managers, pension funds are also at the forefront of investing in new alternatives, for example, in real assets and illiquid credit. But they are by no means the only type of institutional investor looking for capacity with the top alternative managers. Demand from insurers, endowments and foundations, and sovereign wealth funds is on the rise and only going to increase in the future as competition for returns remains fierce,” said [Towers Watson head of manager research Brad] Morrow.

[…]

“Pension funds globally continue to put their faith in diversity via increasing alternative assets to help deliver more reliable risk-adjusted returns at the total fund level. This is evidenced by the growth, significant in some instances, in all but one of the asset classes in the past five years. Most of the traditional alternative asset classes are no longer really viewed as alternatives, but just different ways of accessing long-term investment themes and risk premiums. As such, allocations to alternatives will almost certainly continue to increase in the long term but are more likely to be implemented directly via specialist managers rather than funds of funds, although funds of funds will also continue to attract assets, as borne out by this research,” said Morrow.

The research was part of the Global Alternatives Survey, an annual report produced by Towers Watson.

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