Top global fund managers run $822 billion in alternatives for pension funds

LONDON (Thomson IM) - Alternative assets managed on behalf of pension funds by the world's largest 99 investment managers grew by 40 percent to $822 billion in 2007 from $586 billion the year before, according to research published on Monday by Watson Wyatt Investment Consulting.

The consultant found over half of the top 99 managers are based in the United States, with over a third based in Europe. Real estate managers lead the rankings, occupying the top nine positions and managing 62 percent of pension fund alternative assets.

Infrastructure managers were included in the research for the first time this year. All ten new entrants were ranked in the top 99 with 5 percent of the assets.

Commenting on the findings, Roger Urwin, global head of investment consulting, said: 'There is no let up in the demand for alternative assets as pension funds around the world seek to diversify their portfolios and capture alpha through absolute return strategies.'

'This is the main reason for such significant growth of assets, with the larger firms being the main beneficiaries of growth.

Urwin noted the increasing concentration and ongoing consolidation in the industry as well as the rise of infrastructure as significant developments last year.

Data from the wider survey, which includes 190 investment management firms shows that, at the end of 2007, the top 50 managers within the areas of real estate, fund of hedge funds (FoHFs) and private equity fund of funds (PEFoFs) managed $512 billion, $146 billion and $139 billion respectively.

Infrastructure and commodities remain smaller but are growing, with the top 10 managers in these areas now responsible for $43 billion and $16 billion of assets respectively.

Urwin said larger firms with more alternatives products are proving to be the main beneficiaries of the ongoing demand for alternative investments.

The research found 47 percent of alternative assets managed on behalf of pension funds are invested in North America, while 39 percent are invested in Europe and 10 percent in Asia-Pacific.

North American fund managers account for 63 percent of total assets, while UK and continental European managers account for 18 percent and 12 percent respectively. Asia Pacific is represented by 11 managers from Australia and Hong Kong and account for 7 percent of total assets.

Urwin said: 'The movement of assets into alternatives has continued unabated despite the high fees and costs and the mixed ability of managers to deliver good performance.'

He expects managers will have to work harder to justify charges in the current environment while there remains a need for more transparency, particularly the separate identification of alpha and beta, an increased focus on risk, and high demand for direct investment in private equity and hedge funds.

AEW Capital Management is the largest real estate manager of pension fund assets in the world with $47.4 billion, while HarbourVest Partners tops the PEFoF table with $20.1 billion.

The survey also reveals that Blackstone Alternative Asset Management manages the largest proportion of FoHF assets on behalf of pension funds, with a total of $15.4 billion.

Macquarie Group tops the Infrastructure table with $20.1 billion while Allianz SE is the leading pension fund commodities manager with $7 billion.

By James Molony: +44 (0) 20 7422 4926; james.molony@thomsonreuters.com