(March 14, 2012) — Investors have yet to attain their desired exposure to private markets, despite acknowledging the benefits it could bring to their portfolios, a pensions consultancy firm has found.
Newly released research by bfinance shows that in the second half of 2011, investors lowered their holdings in equities and sovereign debt, while increasing allocation to credit and alternatives (especially real estate and infrastructure).
The firm found 82 institutional investors, with a combined €300 billion in assets under management, were overweight cash and corporate bonds and underweight equities and sovereign debt.
“Interestingly, after having added to real estate, private equity and infrastructure to their portfolios during the second half, investors were still underweight in these asset classes at year end. Coupled with positive investment intentions both over a six month and three year horizon, these tactical positions reveal that investors have yet to attain their desired exposure to private markets,” the study said.
In practice, changes to asset allocations in the second half of last year were restrained because of extreme volatility and uncertainty due to the euro crisis which resulted in the freezing of investment decisions, bfinance said.
“Contrary to some gloomy shorter term expectations for the macroeconomic outlook, the survey found that equities were generally most favored by investors to generate returns to cover long term liabilities, despite investment intentions vacillating in the wake of a negative trend for some three years,” the study noted.
The heightened allocations to real estate, private equity, and infrastructure have been apparent among institutional investors. In September, for example, the Tallahassee-based Florida State Board of Administration (SBA) allocated up to $6 billion in alternatives, the scheme revealed at an investment advisory council meeting.
The fund revealed late last year that it was seeking mangers to run the alternatives allocation, which will be divided into private equity, hedge funds, real estate, commodities, and infrastructure. Within hedge funds, the board said it was targeting equity-oriented managers to focus on absolute return and long-short strategies, running up to a total of $800 million over the next year. Meanwhile, in private equity, the board said it was is seeking to commit roughly $2.5 billion over the next three years to venture capital and other private equity firms. “These would be additional commitments per our 2011-2012 work plan,” SBA spokesperson Dennis MacKee told aiCIO at the time.
Meanwhile, in June, China’s $300 billion sovereign wealth fund said it was targeting mining, real estate, and infrastructure investments in the Americas.
At the same time, South Korea’s roughly $314 billion pension fund said last year that it was aiming to diversify its investment strategy, flocking toward riskier assets in order to meet its new 6.5% investment return target for the next five years. The South Korea’s National Pension Service (NPS) — which updates five-year targets annually — emphasized its goal of increasing its allocation to equities in the next five years, with at least 30% of assets in stocks by the end of 2016. The fund said it would up its allocation to alternatives to above 10% from its current target of 5.8%.