Survey: Pensions Move Toward Riskier Assets

A trend has emerged as pension funds shift away from equities and invest in riskier assets by diversifying into alternatives, with infrastructure leading the way.

(June 8, 2010) — A recent survey by bfinance shows that pension funds are continuing to diversify into increasingly risky assets, with interest in private markets likely to expand in the short to mid-term.

The consultancy’s bi-annual pension fund study discovered less liquid strategies and asset-classes are poised to be the main beneficiaries of a continued shift in global institutional investor allocations. The latest study reveals a trend of pension funds moving down the liquidity scale, investing into riskier assets and diversifying into alternatives.

The leading beneficiary of this trend is infrastructure, according to the study, as well as commodities, private equity, portable alpha and absolute return strategies. In the following six months, about 16% of respondents said they would increase their allocation to infrastructure, while 30% of investors indicated they intend to increase their infrastructure allocation over three years.

“Institutional investors are feeling more comfortable with the markets, therefore taking on the risks of different asset classes,” said bfinance’s Jean-Francois Milette to ai5000. One such investor, Staffan Sevón, CIO of Veritas Pension Insurance, indicated in the release that as interest-rates have moved lower, he’s been pushed to diversify and take advantage of new areas such as infrastructure to achieve the kind of returns ultimately needed to pay out pensions.

Conversely, the study’s results show investors are planning a 17% and 37% decrease in allocating to equities over the next six months and three years respectively.

The firm’s latest Pension Funds & Insurance Asset Allocation Survey, conducted during the flash crash of May 2010, drew respondents from a representative sample of 50 plans across Europe – 18% of which are based in the UK. The survey’s target audience included a cross-section of pension funds, almost half (46%) of which are corporate followed by public pension funds (30%) and endowments (8%) with total assets under management of €92 billion. The pension funds had, on average, a 44% target allocation to equity, 37% to bonds, 16% to alternatives and 3% to cash.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742