Real estate dominates alternative allocations

Real estate remains the most popular alternative asset class among pension funds despite a 4% fall in assets under management in 2008, according to a Watson Wyatt survey. Allocations to private equity and infrastructure rose by 4% each.

Real estate was the most popular alternative asset class in 2008 accounting for more than half of all assets managed by the 100 largest alternative asset managers, a study by Watson Wyatt found.

The research by the investment consulting and advisory services provider revealed that real estate accounted for 58 percent of assets under management, followed by private equity fund of funds with 20 percent. Funds of hedge funds accounted for 13 percent of assets managed by the largest alternatives managers, while infrastructure represented 9 percent and commodities 0.4 percent.

However, despite the popularity of real estate, overall alternative assets managed on behalf of pension funds by the world’s 100 largest investment managers declined from $823 billion in 2007 to $817 billion in 2008.

This contrasts to the 40 percent increase seen between 2006 and 2007.

“I would expect a more significant net decline in global assets under management this year [2009],” Ross Barry, head of portfolio construction group at Watson Wyatt in Australia, said.

But he said over the next 10 years pension funds’ allocations to alternative assets are expected to grow from 7 percent to 17 percent.

The proportion of real estate and hedge fund assets managed by the largest alternatives managers declined between 2007 and 2008, with real estate allocations falling 4 percent. Private equity allocations increased from 16 percent to 20 percent and infrastructure increased from 5 percent to 9 percent.

The survey, which questioned 143 managers, said ING Real Estate Investment Management was the largest real estate manager of pension fund assets with $40.9 billion AUM.

In terms of allocation by region, 53 percent of all alternative assets managed on behalf of pension funds are invested in North America, 33 percent in Europe and 11 percent in Asia.

Direct investment managers were included for real estate, commodities and infrastructure.