Top U.S. Pension Plans Increase Alternative Investment Allocations

Jan 21 2008 | 11:54am ET

The nation's largest defined benefit plans have substantially increased their allocations to alternative investments, including hedge funds and private equities, during the 12 months ended Sept. 30, according to data compiled by Pensions & Investments.

In contrast, allocations to U.S. stocks by the top 1,000 fell to 40.7% of total assets, down from 43.7% the year before. U.S. fixed-income allocations fell to 23.9% from 25.4%.

However, despite the rocky financial markets of 2007, the nation's largest 1,000 retirement plans enjoyed their strongest growth rate in a decade, up 13.5% to $5.4 trillion, in the 12 months ended Sept. 30, according to P&I. Meanwhile, defined contribution plans, such as 401(k) plans, increased 14.5% to $1.71 trillion.

However, prospects look glum for 2008, as pension executives anticipate disappointing returns for almost every asset class.

More detailed data affecting the 200 largest defined benefit plans -- with $5.6 trillion in total assets -- for periods ending Sept. 30, 2007, reveal that hedge fund investments rose 51%. By contrast, hedge fund investments grew 69% the year before. The largest hedge fund investors were: the Pennsylvania State Employees' Retirement System, at $10.6 billion; the California Public Employees' Retirement System, at $6.2 billion; and the New York State Common Retirement Fund, at $5.4 billion.

Private equity investments also increased sharply. Buyouts grew the most, 53%, to $108.4 billion; distressed debt investments rose 27% to $10.5 billion, and venture capital grew 20% to $28.5 billion. Pension funds also made significant allocations to commodities and infrastructure.

Equity real estate investments increased 13.5% to $170.3 billion. The prior year, real estate equity assets grew 30%. Investments in international real estate jumped 96% to $15.7 billion, as U.S. pension funds started pouring money into foreign real estate.
   
International investments grew 16% to $538 billion from the previous year. Actively managed international equity investments totaled $478 billion, while active international fixed-income assets reached $60 billion.

Indexed assets, those that track established benchmarks, dropped 0.9% to $862.1 billion, while investments in enhanced index strategies, which take on modest amounts of risk over "plain vanilla" index approaches, grew 15.5% to $359.8 billion.


In Depth

Exotic Assets: Investing In Rare Violins

Jan 17 2017 | 4:43pm ET

By definition, alternative investments include exotic assets far beyond your typical...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Trump Administration: What It Could Mean for Carried Interest

Jan 19 2017 | 5:25pm ET

The arrival of the Trump administration brings the potential for a repeal of the...

 

From the current issue of

Versum Materials (VSM), with a market capitalization of $2.7 billion, enables chipmakers to achieve higher performance at lower cost with enhanced reliability. Versum is a leading global provider of electronic materials for the integrated circuit and flat-panel display markets.