US Pension Funds Look To Alternative Assets To Plug Funding Gaps

by Phillip Morton, Investors Offshore.com

31 March 2004

US pension funds are beginning to invest more in alternative investment vehicles as they seek to make up funding shortfalls, a recent report has stated.

Although equity markets have recovered from the depths of the bear market over the past year, low interest rates and an ever-growing number of people at a pensionable age have conspired to erode much of the stock market gains the funds made in 2003, the Greenwich Associates 2004 report on the US investment management industry has observed.

For this reason, the report found that whilst institutional investors were trying to squeeze more returns from traditional core debt and equity holdings, they were also switching to “enhanced index” strategies and “spicing up” their portfolios with equities from more exotic regions. This strategy allows fund managers to take overweight or underweight positions in relation to an index or employ more complex futures and options strategies.

The report also noted that pension funds are more prepared to invest in hedge funds and other alternative assets such as equity real estate. The survey showed that the percentage of pension funds, endowments and foundations investing in hedge funds grew from 12% in 2000 to 23% in 2003.

The report by Greenwich Associates was based on responses from 563 corporate funds, 246 public funds and 215 endowments in the US between August and October 2003.

Recommended