One-Third of Alternative Investment Assets in Pension Funds

The world’s 100 largest alternative asset managers saw their assets rise 10% in 2016 to $4 trillion, according to Willis Towers Watson’s Global Alternatives Survey.

Among fund types, pension funds hold 33% of alternative assets, followed by wealth managers (15%), sovereign wealth funds (5%), endowments and foundations (2%), banks (2%) and funds-of-funds (2%).

Real estate accounts for 35%, or $1.4 trillion, of that total, followed by private equity (18% and $695 billion), hedge funds (17% and $675 billion), private equity funds-of-funds (12% and $492 billion), illiquid credit (9% and $360 billion), funds of hedge funds (6% and $228 billion) and infrastructure (4% and $161 billion).

Among the various alternative categories, illiquid credit saw the greatest increase in assets in 2016, a 102% rise from $178 billion to $360 billion. The biggest drop was in hedge funds, which saw their assets decrease 10%, from $755 billion to $675 billion.

“As capital supply and competition have increased in some segments of the illiquid credit universe, yields are not always offering sufficient compensation for illiquidity and risk,” says Brad Morrow, head of manager research, North America, at Willis Towers Watson. “At the same time, we have seen some withdrawal of capital from hedge funds in the face of high fees, skewed alignment of interests and performance headwinds. It appears the growing groundswell of negative sentiment that has arisen due to the aforementioned issues is now showing up in the decisions of asset allocators.”

Willis Towers Watson’s full report on alternative assets can be downloaded here.