Data Room: Pensions seek alternatives

Pension funds are accelerating their shift to alternative assets as they chase better risk-adjusted returns.

According to a State Street survey of 400 pension professionals in 20 countries, 46 percent of pension funds plan to increase exposure to private equity in the next three years.

Timo Ritakallio, president and chief executive of Finland-based Ilmarinen Mutual Pension Insurance Company, told State Street his fund is seeking to raise its private equity allocation from 5 percent to 8 percent.

Pension schemes are also looking to pool their assets, either internally or with other pension funds, to build scale, according to State Street executive vice-president George Sullivan. By joining forces, limited partners can share fixed costs and grow in scale to gain attractiveness among fund managers, he says.

“There’s such a tremendous advantage of having scale, in any business,” Sullivan tells Private Equity International. “It helps to control cost and give you purchasing power.”

Responsible investing is also on the radar of pension funds, with 83 percent showing moderate or high interest in ESG investments. The study, Pensions with Purpose: Meeting the Retirement Challenge, cites the Global Sustainable Investment Association, which found that the sustainable investment market grew to $21.4 trillion in 2014 from $13.3 trillion in 2012.

Internally, only about a third of the respondents believe their board is “very strong” in addressing longer-term issues and understanding risks. To that end, more than nine in 10 funds are planning to upgrade their governance model in the current year.