Study: More pensions allocating to alternatives

The number of corporate pensions allocating to alternatives has risen steadily since 2008, but the size of allocations has fallen since last year.

For the third consecutive year, an increasing number of US corporate pensions are allocating to alternatives, with roughly 80 percent of respondents in one survey committing capital to the asset class.

That’s according to a “quick poll” done by SEI, which sets up private equity funds of funds for corporate pensions, endowments and foundations. Alternatives are defined by SEI as all non-capital market investments, including hedge funds, private equity funds and direct private real estate investments.

In 2011, 78 percent of pension executives who responded to the poll said their pension was invested in alternatives, according to SEI. Last year, 65 percent of respondents indicated they were invested in alternatives, compared to 53 percent in 2009 and 51 percent in 2008.

“What I think we’re seeing are pension sponsors really developing avenues for getting into this space by finding experts to help advise them on it,” Jon Waite, director of investment management advice and chief actuary of SEI’s institutional group, told Private Equity International. “We’re seeing a lot more reliance on the expertise of those consultants and we’re seeing plans that didn’t use outside advisors moving there,” Waite said.

Nearly half of all participants in the survey said their organisation would look at hiring outside consultants for making future changes to their allocation amounts.

Despite the overall increase in alternatives exposure, the survey also found that the percentage of plans with more than a 10 percent allocation to alternatives has fallen from 77 percent in 2010 to 42 percent this year.

“We have seen some pullback in the amount of the portfolio being allocated to alternatives,” Waite said. “I think they’re re-evaluating. They want to make sure that they understand the space before they get into it.”

On the public institution side, many state pensions such as the California Public Employees Retirement System have been working to trim down the sizes of their private equity portfolios, culling their manager relationships to make their programmes more manageable.

“The goal is always to focus on top quartile performers,” a CalPERS spokesperson told Private Equity International in a prior interview. “We’ve used secondary sales as part of this consolidation strategy to keep the line-up manageable and eliminate redundancy of also-ran funds.”