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Alternative Market Briefing

Pensions fill a 'fixed income sized hole' with alternatives

Wednesday, February 17, 2021

Bailey McCann, Opalesque New York:

Pension funds continue to shift toward alternatives, according to a new study from pension consultants Willis Towers Watson. In 2000, just 7% of pension fund assets in developed economies were allocated to private markets and other alternatives, that number now stands at 26%.

The shift comes largely at the expense of equities, down from 60% to 43%. Bond allocations have also fallen marginally from 31% to 29%. The average allocation now sits at equities 43%, bonds 29%, alternatives 26% and cash 2%.

Marisa Hall, co-head of the Thinking Ahead Institute at Willis Towers Watson says that the trend toward alternatives is positive overall. "This paints a picture of a resilient industry in good health and relatively well placed to weather the effects - economic and otherwise - of the ongoing pandemic," she said.

According to the report, alternatives are filling a "fixed income shaped hole" in pension portfolios, providing yield where bonds are lagging. Much of the allocations into private funds are going into real estate, private equity and infrastructure. These asset classes have a longer timeline and potentially higher illiquidity premium than hedge funds, but they aren't without risk. All three groups are already at record levels of assets and the opportunity set is limited.

While it is likely that all three asset classes produce higher returns than pensions would get from fixed income, they may still......................

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