Alternative investments, such as hedge funds, private equity, and real estate, are slowly gaining sway with corporate pension fund managers. A recent survey by J.P. Morgan Asset Management of about 150 corporate pension plans found that alternative investments constitute about 11% of their assets, on average, and that the plans intend to increase that allocation to 14% within the next three years.
A separate survey of about 85 corporate pension managers by SEI Institutional Group found that the percentage of corporate pensions investing in alternatives increased in 2010 for the third consecutive year. Sixty-five percent of pensions in the SEI survey are investing in alternatives this year, up from 53% in 2009. Among larger pensions (those with more than $300 million in assets), the rate jumps to 84%.
In J.P. Morgan’s survey, hedge funds are the most popular alternative choice, accounting for about 40% of such assets. On average, companies hold 8% of their overall portfolios in hedge funds, and plan to boost that to 10% in the next three years. “Even though people [were wary of hedge funds after 2008], those who were invested want to remain invested,” says Karin Franceries, a vice president in J.P. Morgan’s strategic investment advisory group.
However, more corporate pensions have invested in private equity than in hedge funds — though the average size of the investment is smaller — and are planning to increase investments in that category as well. The largest plans, those exceeding $10 billion in assets, have higher allocations to private equity than to hedge funds. Real estate is also fairly popular, with some increases planned.