Pension Funds Hold Steady on Alternative Investments

July 6, 2009 (PLANSPONSOR.com) - Alternative assets managed on behalf of pension funds by the world's largest investment managers decreased by around 1% to $817 billion in 2008 compared to the year before, according to global research produced by Watson Wyatt in conjunction with the Financial Times.

“In spite of poor short-term performance, the demand for alternative assets by pension funds aiming to diversify their portfolios and access skill remains. As a result, inflows continued last year which, combined with their illiquid nature and less negative performances than pure equity, resulted in only a marginal decline in assets,” said Carl Hess, global head of investment consulting at Watson Wyatt, in a press release.

An analysis of the top 100 alternatives managers shows that real estate managers dominate, accounting for around 58% of assets (down from 62% in 2007), followed by Private Equity Fund of Funds, Fund of Hedge Funds, infrastructure and commodities. They also dominate the top ten ranking with eight managers in that list, according to the press release.

As with real estate, hedge funds assets (13% of assets) also diminished in 2008 with both private equity (20% of assets) and infrastructure (9% of assets) being the beneficiaries, while commodities assets remained relatively small (less than half a percent of assets).

Data from the wider survey shows that at the end of 2008, the top 50 real estate managers, fund of hedge funds (FoHFs) and private equity fund of funds (PEFoFs) managed $485 billion, $123 billion, and $177 billion,  respectively.  Infrastructure and commodities remain smaller, but are becoming easier for pension funds to access with the top 10 managers in these areas being responsible for $72 billion and $9 billion, respectively. 

Also, according to the broader research, the majority (52%) of alternative assets managed on behalf of pension funds are invested in North America, while a third are invested in Europe, and 11% in Asia-Pacific. In terms of domicile, two-thirds of managers are based in the U.S., while a quarter are based in Europe, and the remainder are based in Asia-Pacific.

At the top of the rankings ING Real Estate Investment Management is the largest real estate manager of pension fund assets with $40.9 billion, while HarbourVest Partners tops the PEFoF list with $22.4 billion. Blackstone Alternative Asset Management manages the largest proportion of FoHF assets on behalf of pension funds, with a total of $13.5 billion.

Top 10 global alternatives managers

align="center"> Rank

align="center"> Parent organisation

align="center"> Domicile

align="center"> AuM
(USD million)

align="center"> Asset Class

align="center">1

align="center">Macquarie Group Limited

align="center">Australia

align="center">44,422.00

align="center">Infrastructure

align="center">2

align="center">ING Real Estate IM

align="center">Netherlands

align="center">40,943.60

align="center">Real Estate

align="center">3

align="center">Morgan Stanley

align="center">United States

align="center">39,000.00

align="center">Real Estate

align="center">4

align="center">RREEF Alternative Investments

align="center">United States

align="center">33,336.00

align="center">Real Estate

align="center">5

align="center">JPMorgan Asset Management

align="center">United States

align="center">32,200.00

align="center">Real Estate

align="center">6

align="center">CB Richard Ellis Investors

align="center">United States

align="center">26,512.90

align="center">Real Estate

align="center">7

align="center">AEW Capital Management, LP

align="center">United States

align="center">26,140.60

align="center">Real Estate

align="center">8

align="center">LaSalle Investment Management

align="center">United States

align="center">25,145.00

align="center">Real Estate

align="center">9

align="center">The Principal Financial Group

align="center">United States

align="center">23,075.80

align="center">Real Estate

align="center">10

align="center">HarbourVest Partners, LLC

align="center">United States

align="center">22,449.00

align="center">PEFoF

* Excludes direct investment in single strategy private equity funds and hedge funds, in other words only funds of funds in these areas have been included.

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