David Oakley, Investment Correspondent
Fund managers are showing a greater willingness to take risks with pensioners’ money
Pension fund managers around the world are preparing to invest in riskier assets such as hedge funds and private equity funds as they seek higher returns and their ability to select the best managers improves.
Research by State Street, the US financial group, has found that 77 per cent ofpension funds expect their appetite for alternative investments to increase over the next three years.
Oliver Berger, State Street’s head of strategic market initiatives for Europe, the Middle East and Africa, said: «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.
«However, they are better equipped than ever before to do this. 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,» he said.
The growing appetite for investments in alternative assets such as hedge funds contrasts with a recent decision by Calpers, the largest pension fund in the US, to withdraw its $4bn investments in hedge funds because they had become too complex and costly.
The State Street research, which involved interviewing the executives in charge of 134 different pensions schemes around the world, shows that a large majority were prepared to take more risk as low yields and interest rates have made it harder to meet long-term obligations with safer assets such as government bonds.
Of the asset owners surveyed, 20 per cent also said they expected their risk appetite to increase significantly over the next three years.
The most popular asset class among the so-called alternative asset classes was private equity, followed by real estate, infrastructure and then hedge funds.
Of the survey participants, 60 per cent said they intended to increase their exposure to private equity. This fell to 45 per cent for real estate and 39 per cent for infrastructure.
For hedge funds, 20 per cent plan to increase their allocation, while 3 per cent said they would reduce it.
Regional findings showed that private equity is of the greatest interest to respondents in the Americas, with 68 per cent planning to increase their allocation, compared with 60 per cent in Europe, the Middle East and Africa and only 45 per cent in the Asia-Pacific region.
Asian respondents showed high levels of interest in expanding their investment in hedge funds, with 57 per cent planning to increase their allocation.