Study: Institutional Players Chasing Alt. Investment Returns

April 5, 2006 ( - In their efforts to chase more robust returns, US institutions are increasing their investments in international equities, private equity, and other alternative assets, a new study has found.

A Greenwich Associates news release said that while these investments have been funded in past months by shifting assets out of fixed-income, US equities could be next to take a hit.

According to the announcement, among all US pension funds, endowments and foundations, the share of total assets invested in domestic equities remained essentially flat from 2004 to 2005, despite positive market performance. Looking ahead however, 17% of US funds expect to make a “significant” decrease to their allocations of active domestic stocks in the next three years, and 20% plan to make similar reductions to passive equity allocations.

If US institutions follow through with their plans, international stocks appear ready to be the primary beneficiary of that movement. Active international equity allocations among US institutions increased by 0.5% from 10% of total assets in 2004 to 10.5% in 2005. This trend appears likely to continue as 10% of US corporate funds expect to make “significant” increases to their active international equity allocations in the next three years, as do 9% of public funds and more than 20% of endowments.

Equity real estate will also be a potential recipient of transferred assets. Among all US institutions, equity real estate allocations have increased from 3.1% of total assets in 2001 to 3.9% in 2005. Thirty-six percent of endowments plan to make a significant increase to their equity real estate holdings over the next three years, as do 29% of public funds and 23% of corporate pension funds.

Greenwich Associates researchers said institutional players might have similar difficulties putting their money to work in private equity. In 2005, private equity made up 8.9% of the assets of US endowments and constituted 4% of public pension assets and 2.3% of corporate plan assets. Looking out over the next three years, Greenwich Associates data show that 30% of corporate pension plans, 41% of public plans and 48% of endowments are planning to make “significant” increases to their private equity allocations.

These findings are taken from Greenwich Associates’ 2006 Institutional Asset Allocation Research Study. Greenwich Associates conducted in-person interviews with fund professionals at 580 corporate funds, 225 public funds, and 214 endowments and foundations in the United States.