Pension schemes target more illiquid strategies
GLOBAL - Property, private equity and infrastructure are the target areas for pension funds in the short to medium term as schemes look to move towards less liquid strategies, research from bfinance has revealed.
Findings from bfinance's latest bi-annual pension funds & insurance asset allocation survey suggest institutional investors are continuing to diversify into alternatives.
The largest net increases in allocation over the last six months were seen in currency - with a 6% increase - and single hedge funds, absolute return strategies and infrastructure, which all increased by 4%.
The survey of 50 pension schemes, of which 48% are based in Europe and 52% in North America, suggested infrastructure could be the next target asset class over the next six months, with 16% of respondents saying they would increase their investment in this area. Over a three-year period, that figure rises to 30% of investors.
This is despite a recent survey of infrastructure managers by bfinance that showed a lack of expertise on behalf of pension funds was deterring investment in the asset class. (See earlier IPE article: Lack of expertise deters investment in infrastructure)
However, the findings showed property and private equity were also targets for pension funds in the short to medium term, with 20% intending to increase property exposure and 10% private equity exposure by the end of the year.
Bfinance noted the three-year outlook for commodities, portable alpha and absolute return strategies also looked promising with 21%, 14% and 18% of investors, respectively, highlighting plans to increase investments.
The survey results also showed a continued trend away from equity investment, as 17% of respondents expect to decrease holdings over the next six months. This figure rises to 37% over the next three years.
In contrast, allocations to fixed income remain steady, with only 2% expected to increase investments by the end of the year, although 22% are planning an increase over a three-year period.
David Vafai, chief executive at bfinance, said: "Together with infrastructure, commodities, portable alpha and absolute return strategies are set to be the beneficiaries of a change in investor preferences away from equity.
"Viewed on their own, many of these less liquid strategies carry more risk. Combined together, they provide a sought after diversifier."