GLOBAL - Pension funds are opting out of infrastructure and boosting their allocations to real estate amid continuing concerns over leverage and fund concentration, according to Towers Watson.

The consultancy's annual Global Alternatives Survey reported a 16% increase to $952bn (€680bn) in alternative assets under management in 2010.

Real estate remains the most attractive alternative for pension schemes, accounting for 55% of assets and 44 of the managers in the top 100 ranking.

Private equity funds of funds came second, followed by infrastructure, funds of hedge funds and commodities.

In this year's survey of 271 managers, 11 infrastructure managers appear in the top 100, compared with only nine in 2009.

Moreover, infrastructure investments for pension schemes by the top 20 infrastructure managers increased by 18% last year.

However, senior investment consultant Paul Jayasingha said many pension funds were concerned about leverage, either in the funds themselves or in the underlying operating companies.

"Pension funds think infrastructure is fine as a strategic investment, but concentration would be an issue for many of our clients," he said.

The top five managers have 71% of all pension fund infrastructure assets - making infrastructure the most concentrated asset class.

Infrastructure assets in Europe increased from 43% in 2000 and to 48%% last year. Meanwhile, North American infrastructure assets fell from 36% to 30%.  Asia saw a marginal 3% increase to 19%.

"Our clients tend to be more cautious about Southern Europe, and we have given them quite directive advice on Asia," said Jayasingha.

In contrast to infrastructure, investors saw a broad spectrum of opportunities in real estate across listed companies, property debt, secondary funds and derivatives.

"The volumes aren't there yet for derivatives, but more managers are using them to manage their cash flow," said Jayasingha. "There are already some products in the derivatives space."

Despite accounting for the smallest allocation, commodities increased their percentage vis-à-vis infrastructure, private equity funds of funds and funds of hedge funds. 

Assets managed by commodities managers totalled $44bn last year - almost double the 2009 total. Almost three-quarters were invested in North America, despite a slight fall over the previous year and a 16% increase to European assets.

Overall, more than 80% of assets managed by the top 50 managers are in Europe and North America, although the North America percentage shrank from 55% to 46%. Assets invested in Asia increased from 7% to 14% last year.

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