Pension fund exposure to alternative assets has more than doubled over the six years since the financial crisis, standing at $9.7trn (€8.6trn) at the end of 2014.
Alternatives is now also the third-largest asset class globally, behind a 44% exposure to equities and a 28% exposure to bonds, across the $27.2trn in assets captured in a joint survey by the Association of the Luxembourg Fund Industry and PwC.
The report – ‘Beyond their borders: evolution of foreign investment by pension funds’ – focused largely on the growing global diversification of pension investors, noting that the allocation to non-domestic assets had risen from 25% in 2008 to 31% at the end of last year.
Dariush Yazdani, partner at the PwC Luxembourg Market Research Centre, said that, despite challenges, pension funds were facing “a future brimming with opportunities”.
In spite of the notable increase in global allocations across the 29 countries captured in the research, European investors only saw their global exposure increase from 32% to 34% – although countries such as the Netherlands had a high non-domestic exposure, standing at 76% of assets.
Yazdani added: “The unique ability of pension funds to focus on long-term investments allows them to absorb short-term volatility while bearing market and liquidity risk through diversification – one of the most effective means of achieving diversification is through foreign exposure.”
The survey highlighted the growth of alternatives as an asset class, which has risen from $4.4trn in 2008 to $9.7trn in 2014, a 117% increase.
While alternatives exposure has grown significantly in absolute terms, the growth in relative terms is less pronounced – only increasing from 21% to 26% of assets in the six years to 2014.
A large part of the growth stemmed from US pension investors, where exposure more than doubled to $7trn.
UK exposure grew from $363bn to $925bn over the same time.