Confirming a trend that many private equity observers have noted in recent years, a Bear Stearns survey found that North American public retirement systems have become increasingly enamored with alternative asset investments.
The study surveyed 150 public pensions throughout the US. Roughly 52 percent of respondents said they invested or were planning to invest within the next year in alternative assets.
Real estate was overwhelmingly the most popular alternative investment option among those surveyed. Eighty-five percent of pensions interested in alternative investments said they possess investments or are planning to invest in residential and commercial housing.
Private equity and venture capital investments were the next most popular, garnering 60 percent and 40 percent, respectively. Precious metals and commodities were the two least likely investment destinations.
The survey, jointly conducted by the Bear Stearns Pension, Endowment and Foundation Services Group and the Government Financial Officers Association, corroborates what general partners have been seeing for years now: pension movement toward alternative investments.
“Observing my colleagues over the long term, there has been a trend in investing in non public markets,” said Clare Murphy, executive director of the San Francisco City and County Employees’ Retirement System.
The study also found that most pension funds still rely on their general investment consultant when considering alternative allocations.
Three-quarters of respondents said they employed the services of their general investing consultant when entertaining prospective alternative investments. Only 24 percent use an alternatives specialist. Seventy percent used consultants to perform due diligence on prospective managers.
The survey brought to light many of the factors involved in a pension fund’s selection of alternative asset managers. In ranking the most important characteristics retirement systems look for in a hedge fund manager, the management firm’s reputation was identified as the most important, while their performance record was a close second.