No end to the pull of alternatives
EUROPE - The trend for pension funds to invest in alternatives remains unbroken, according to an IPE pension fund survey.
A fifth of the respondents to the survey said infrastructure was the latest alternative asset class they had gained exposure to, ahead of hedge funds or fund of hedge funds for 16.5% of respondents and ahead of real estate for 13.5%.
Three pension funds said they recently ventured into commodities, while two respondents said they had moved into private equity and timber respectively. A Danish pension fund also stated the last alternative asset class it went into was clean tech, while for others it was portable alpha, currency, unconstrained mandates and absolute return strategies.
Twenty pension funds started their alternative investments in the 2000s, however others go as far back as the 1960s.
Real estate and hedge funds tended to be the alternative asset classes that pension fund respondents invested in first, followed by private equity.
Real estate also provides the largest alternatives exposure for a third of respondents. For 30.5% of respondents hedge funds or fund of hedge funds were the largest alternatives holding, while private equity formed the biggest alternatives weighting for 27.5% of respondents. One Dutch pension fund stated its biggest alternative exposure was to commodities.
The majority of respondents - 54.5% - did not change its alternatives allocation in the wake of the financial crisis. However, several respondents said they had cut their alternative investments.
In contrast, one UK fund said: "We increased [our alternatives exposure] by a further 10% to 35% and introduced an absolute return bucket."
"Our allocation remained constant - however we chose not to invest more, even though the weight was below the benchmark," added a second UK fund.
A Swedish fund said it had reduced its fund of hedge funds and instead added more real assets in its portfolio.
Pension funds said the main dissatisfaction with alternatives stemmed from poor returns, liquidity, transparency and fees. Two-thirds of respondents have raised their concerns about these issues with their respective managers.
The latest Off the Record survey - which will appear in IPE's November issue - surveyed a total of 35 pension funds with combined assets of €100.2bn.