Pension funds boost alternatives by 5% globally as shift speeds up

The largest 100 alternative investment managers around the world saw a 3% rise in their assets under management in 2015 to $3.61trn (€3.26trn), with pension funds accounting for $1.49trn of this – up 5% from the year before, according to a survey.

Willis Towers Watson’s Global Alternatives Survey showed that total global alternative assets managed by all 602 investment managers covered in its broader survey had reached $6.2trn at the end of December 2015.

Luba Nikulina, global head of manager research at the consultancy, said: “The shift away from equities and bonds into alternatives has gained momentum among most institutional investors around the world, as these strategies have helped to manage risk through diversity.”

Persistent economic uncertainty coupled with highly volatile conditions is likely to reinforce this trend, she predicted. 

Of the top 100 alternative asset managers, the survey showed that real estate managers had the largest share of assets, at 34%, followed by hedge funds with 21%, private equity fund managers with 18% and private equity funds of funds with 12%.

Funds of hedge funds, meanwhile, had 6% of the total, infrastructure accounted for 5% and illiquid credit 5%.

Nikulina commented that institutional investors were continuing to focus on diversity – but not at any cost. 

“While inflows into alternative assets continue apace, investors have become more mindful of alignment of interests and getting value for money,” she said.

She said this had contributed to more blurring of the lines between individual asset classes, as investors concentrated on underlying return drivers.

The ultimate aim of this is to achieve true diversity and make portfolios more robust in the face of the increasingly volatile and uncertain macroeconomic environment, Nikulina said.

Separately, a survey from Northern Trust suggested that Nordic institutional investors were about to increase their allocations to alternative asset classes and environmental, social and governance (ESG) investments.

Polling around 50 Nordic institutional investors about the changing role of alternative investments at a recent event, Northern Trust said more than 80% expected investor allocations to alternatives to rise within the next five years, with the highest new allocations going to private equity and infrastructure.

Paul Cutts, head of alternative investment services for Northern Trust Global Fund Services across Europe, Middle East and Africa, said: “In the current low-growth, low-interest-rate environment, alternative investments play an increasingly important role for investors looking for higher yield and lower volatility.”

Poll participants also said they expected an increased focus on ESG factors within the investment process over the next five years, with 26% saying ESG credentials could make or break a deal. 

Mamadou-Abou Sarr, global head of ESG investing at Northern Trust Asset Management, said: “ESG considerations are naturally linked to infrastructure investments.”