Study: Pension funds plan to increase PE exposure

The State Street survey discovered 77% of pension funds expect an uptick in appetite for riskier asset classes

Around 60 percent of pension funds intend to increase their exposure to private equity, according to a new report from State Street Corporation surveying 134 pension fund executives globally.

The survey also showed that over the next three years, 77 percent of pension funds worldwide expect their appetite for risk to increase as they continue to seek the best returns for their members, therefore intending to increase their exposure to alternatives.

One in five of the asset owners surveyed by State Street responded that they expect their risk appetite to increase significantly during this period.

Respondents in the Americas are most keen to increase their private equity allocation, with 68 percent responding that they plan to do so. In Europe, the Middle East and Africa, 60 percent plan to increase their allocation, with 45 percent in Asia Pacific saying the same.

Participants will also increase their exposure to real estate and infrastructure, with 45 percent and 39 percent respectively responding that they would increase their allocation.

Hedge funds are also set for a boost, with 29 percent of pension funds indicating an intention to increase their exposure to single managers, and just 3 percent planning to reduce their allocation. Twenty percent of respondents plan to increase their allocation to fund of hedge funds, 3 percent will reduce it, and 27 percent will invest for the first time.

“Pension funds are under huge pressure at the moment. With increased market volatility, they are faced with challenging and complex liabilities. To achieve the returns they need, they have to take on more risk,” said Oliver Berger, senior vice president and head of strategic market initiatives for State Street EMEA, adding that pension funds are in a better position than ever before to do so.

“With improvements in data mining and management and reporting, fund managers and asset owners have a better understanding of the risk reward profile of investments.”