(February 13, 2013) — Intuitional investors have increased their allocations to alternative assets by 70% over the last two years, with a determined push towards direct holdings, investment consulting firm Towers Watson has revealed.
In 2012, pensions, sovereign wealth funds, and insurers, who use Towers Watson’s services, allocated $12 billion to hedge funds and private market strategies the firm said. This was a 70% increase on allocations made in 2010.
Macro, fixed income, and reinsurance funds gathered the most assets last year, Towers Watson said, with inflows mainly coming through direct investments. Real estate, private equity, and infrastructure funds also received predominantly direct inflows, the consultant said.
“Larger institutional funds are likely to continue to invest in funds directly for most alternative asset classes rather than via funds of funds as investors continue to focus on better fee structures and greater transparency,” said Craig Baker, global head of investment research at Towers Watson.
Infrastructure, which has had some powerful supporters in Europe and North America, saw three times’ more assets being allocated by Towers Watson’s clients to the strategy than in 2011.
Smart beta has also been a growing trend among Towers Watson’s clients, with $20 billion now allocated to the strategy.
“These Smart Beta strategies range from relatively simple ideas such as real estate securities and specialist infrastructure strategies to create liquid diversity to doing existing betas better, such as non-market cap weighted equities,” Baker said. “They also include more specialist solutions with niche asset managers, such as reinsurance, currency carry and volatility premia.”
Bond and equities remained popular, gathering $24 billion and $22 billion in global mandates respectively over 2012, Towers Watson said.