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Pensions Love Alternative Investments More Than Ever – And It’s easy to See Why

Pension funds globally remain resolute in increasing their exposure to private equity, real estate, and other alternatives, according to a report.* The report covers 22 pension markets, including Germany, Hong Kong, India, and Japan, with almost $47 trillion in defined benefit and defined contribution assets.

Pensions are still investing heavily into the alternative investments marketplace the study shows. Do they know something? They usually do…

 (*from Willis Towers Watson’s Thinking Ahead Institute).

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Some notable highlights from the report:

  • Assets in the average global pension fund increased by 15.2 percent measured in U.S. dollars in 2019.
  • In 2019 the biggest seven pension funds showed an average annual increase of 15.8 percent measured in U.S.D.
  • Alternative investments have skyrocketed in popularity over the past 20 years. They state: “The asset allocation to real estate, private equity and infrastructure in the 20-year period has moved from about 6 percent to almost 23 percent.”
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  • The report states that when it comes to alternative investments pension funds are seeking to better align interests between allocators and asset managers in order to expand access. Co-investments are popular, ie: investing alongside private markets managers. Others are exploring more innovative vehicle structures and are, for example, looking at interval funds; which offer periodic liquidity for investors. Good news.
  • Assets of the 22 funds that were studied in the report increased from $40.6 trillion to $46.7 trillion in 2019.
  • The average global asset allocation for the seven largest pension markets was 45% in equities, 29% in bonds, 23% in other asset classes, and 3% liquid.
  • As of 2019, the big seven pension markets are also split evenly between defined contribution and defined benefit assets.

“The trend is the opposite of a simple portfolio. Pensions are adding more alternatives”.
– John Delaney, senior director, investments and portfolio manager at the Thinking Ahead Institute.

What this means

The pension funds are simply seeking what you should be too:

To protect their wealth, to diversify their portfolios, to hedge against volatility and inflation, to increase tax efficiency and gain yeild.

These facors are exactly what makes alternative investments increasingly popular. Get on board.

 

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