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Pensions plough $822bn into alternatives

Alternative assets managed by the world’s top 99 investment managers on behalf of pension funds grew by 40 percent over the past year, according to consulting firm Watson Wyatt.

Alternative assets managed on behalf of pension funds grew by more than 40 percent to $822 billion (€525 million) in 2007, up from $586 billion the year before, according to consultancy firm Watson Wyatt.

Ranking the world’s the top 99 managers of pension fund alternative assets, Watson Wyatt said the top nine positions were dominated by real estate, with AEW Capital Management, ING Real Estate and RREFF making the top three slots managing pension fund assets worth $47 billion, $43 billion and $40 billion respectively.

Real estate accounted for $512 billion of assets managed on behalf of pension funds compared to fund of hedge funds with $147 billion, private equity fund of funds with $139 billion and infrastructure with $46 billion. Commodities had AUM of $15.5 billion.

In total, real estate accounted for 62 percent of all pension fund assets under management, down four percent on 2006. Private equity fund of funds accounted for 15 percent, an increase of two percent compared to 2006, while fund of hedge funds fell three percent to 16 percent of overall AUM in 2007. Infrastructure, included for the first time in the survey, accounted for five percent of AUM, and commodities remained constant on two percent.

About 87 percent of assets managed by the top 50 real estate fund managers were invested in the US and Europe. Asia, however, saw its influence grow among investors, with 10 percent of total real estate AUM invested in the region in 2007 compared to just two percent in 2006.

Private equity fund of fund managers were also primarily focused on the US and Europe, with 92 percent of AUM invested in the regions in 2007 – the highest geographic concentration of all the asset classes surveyed.

Infrastructure investment firm Macquarie Group was the first non-real estate fund manager to make it into the rankings in 10th position managing $20 billion of assets, followed by private equity fund of funds firm HarbourVest Partners in 11th also managing $20 billion of assets.

Private equity fund of funds firms Panthenon Ventures and JP Morgan Asset Management were the next non-real estate firms in the listing appearing in 14th and 16th position respectively with $16.9 billion and $16.2 billion of pension fund assets under management.  Blackstone Alternative Asset Management was the largest fund of hedge fund manager with $15.4 billion of assets managed on behalf of pension funds.

According to the survey the largest real estate fund size was $47.4 million, while the biggest private equity fund of funds and infrastructure fund size was $20 million respectively.