There are two ways to parse this year’s Financial Times/Towers Watson survey of pension funds’ alternative investing. On one hand, the report, which covered investing in 2009, found that alternative investments made up 16 percent of global pension funds’ assets.
That’s nearly triple the amount alternative assets got ten years ago. Alternative investments include commodities futures and funds, infrastructure, real estate, private equity funds of funds and other types of assets.
Commodity investments jumped more than five times – which sounds impressive until the actual numbers come out: an increase from .4 percent of total investments to 2 percent. Funds cite volatility as one of the biggest issues, scaring off a lot of potential investors.
Many of the pension funds see commodities investments as a hedge against inflation.
Commodities – particularly gold and oil – generally move in opposition to the value of the dollar, so U.S. hedge funds can reduce their inflation risk by putting money into those assets.
Most of the pensions’ investments are handled through large managers, with Pimco, Gresham Investment Managers, Schroders, Diapason and Hermes in the top five.
However, the FT/Towers Watson report suggests that given the slow and conservative tendencies of pensions, a much brighter future awaits institutional investment in commodities markets.
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