An analysis of the top 100 alternatives managers shows that real estate managers dominate, accounting for around 52% of assets (down from 58% in 2008), followed by PEFoF on 21% (20% in 2008), FoHF on 13% (13% in 2008), infrastructure on 12% (9% in 2008) and commodities on 2% (0.5% in 2008).
“Infrastructure and commodities managers have significantly increased their pension fund assets under management during the past year, as investors have become more comfortable with these asset classes and while others have continued to opportunistically add to their allocations,” said Hess. “However, investors should be very wary of the structure of some of these mandates with careful attention being paid to the ‘net of fees’ proposition, in particular for infrastructure.”
Data from the wider survey shows that at the end of 2009, the top 50 real estate managers, FoHFs and PEFoFs managed US$439bn (US$485bn in 2008), US$127bn (US$123bn in 2008) and US$187bn (US$177bn in 2008) respectively. Infrastructure and commodities remain smaller, but are becoming easier for pension funds to access with assets of the top 15 commodities managers more than tripling in 2009 compared with 2008.
“Investment in commodities is becoming more commonplace, as suitable vehicles are developed, resulting in their increasing use as a diversifier and hedge against inflation,” added Hess. “Significant assets are now flowing into these strategies, but mainly in North America which accounts for 77% of commodities assets.
“Regarding hedge fund and private equity investing, we believe in the ability of highly skilled managers to adapt to changing and increasingly volatile market conditions and to generate good performance for our clients,” Hess continued. “However, we believe that more, larger investors will invest directly in future rather than through funds of funds, particularly due to positive developments on fees, which are increasingly better aligned with investors’ interests. This, and liquidity factors, would account for static fund of hedge fund AuM last year and only modest AuM growth in private equity fund of funds.
“We are also seeing greater interest in the new alternative beta opportunities for improving investment efficiency that are now more widely available,” Hess said.
According to broader research, the majority (51%) of alternative assets managed on behalf of pension funds are invested in North America, while a third are invested in Europe and 9% in Asia-Pacific. In terms of domicile, two-thirds of managers are based in the US, while a quarter are based in Europe with the remainder being based in Asia-Pacific.
“The theory of diversity has faced its sternest test in a generation but those investors that had diversified their assets have made a strong case for it,” Hess said. “Going forward it is likely to become even more important given the ongoing economic uncertainty and new opportunities will continue to help build more efficient portfolios. While this could lead to a requirement for higher governance than for a simple equity/bond portfolio, it doesn’t necessarily have to and we think the effort to diversify is worthwhile.”
