The Markets July 14, 2014

Pensions Increase Investments in Alternatives

Total assets managed by the top 100 alternative investment managers globally reached $3.3 trillion in 2013, compared with $3.1 trillion in 2012, Towers Watson research finds.
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The Global Alternatives Survey, conducted in conjunction with the UK’s Financial Times shows pension fund assets represent one-third (33%) of the top 100 alternative managers’ assets, followed by wealth managers (18%), insurance companies (9%), sovereign wealth funds (6%), banks (3%), funds of funds (3%), and endowments and foundations (3%). Allocations to alternative assets by pension funds now account for around 18% of all pension fund assets globally, up from 15 years ago when it was 5%, says Brad Morrow, head of manager research, Americas, based in New York.

In the ranking of top 100 asset managers by pension fund assets, these increased by nearly 2% from the year before to reach nearly $1.4 trillion. Real estate managers continue to have the largest share of pension fund assets, with 35%, followed by private equity fund of funds (PEFoFs) (20%), private equity (15%), hedge funds (12%), infrastructure (8%), fund of hedge funds (FoHFs) (7%), illiquid credit (2%) and commodities (1%).

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“Pension funds continue to search for new investment opportunities, and alternative assets have been an area where they have made, and continue to make, very significant allocations. While remaining an important investor for traditional alternative managers, pension funds are also at the forefront of investing in new alternatives, for example, in real assets and illiquid credit,” says Morrow.

“Pension funds globally continue to put their faith in diversity via increasing alternative assets to help deliver more reliable risk-adjusted returns at the total fund level. Most of the traditional alternative asset classes are no longer really viewed as alternatives, but just different ways of accessing long-term investment themes and risk premiums. As such, allocations to alternatives will almost certainly continue to increase in the long term but are more likely to be implemented directly via specialist managers rather than funds of funds, although funds of funds will also continue to attract assets, as borne out by this research,” Morrow adds.

The survey covers seven asset classes and seven investor types, and shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (31% and over $1 trillion), followed by private equity fund managers (23% and $753 billion), hedge funds (22% and $724 billion), PEFoFs (10% and $322 billion), FoHFs (5% and $173 billion), infrastructure (4%) and commodities (2%).

In addition, the research shows that for the top 100 managers, North America continues to be the largest destination for alternative capital (45%), with infrastructure as the only major exception (with more capital invested in Europe). Overall, 38% of alternative assets are invested in Europe, 7% in Asia-Pacific and 10% invested in the rest of the world.

The survey looked at the largest alternative investment managers in 2013 and includes 589 investment manager entries comprising 85 in real estate, 66 in fund of hedge funds, 55 in private equity fund of funds, 162 in hedge funds, 90 in private equity, 55 in infrastructure, 32 in commodities, 24 in illiquid credit and 20 in real assets.

More information about the survey can be found here.

Data & Research July 14, 2014

Help Service Members Avoid Financial Abuse

Military members have significant financial concerns and seek protection from potential abuse, according to a recent survey by The National Foundation for Credit Counseling (NFCC).
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A strong majority (77%) of service members have financial worries, the NFCC survey shows. More than half indicate (55%) they are “not at all prepared” for a financial emergency.  Meanwhile, 60% of respondents say they had to look outside traditional financial institutions and turn to nontraditional lenders—often at high rates of interest—to meet short-term financial needs.

The NFCC suggests these trends put military members at increased risk for abuse from unscrupulous providers and make them ideal candidates for financial advice.  

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“No one should be victimized by financial abuse, particularly the military,” says Gail Cunningham, spokesperson for the NFCC. “One way to avoid financial abuse is through financial education, as an educated consumer is always a better consumer, one more equipped to identify fraud or deception and make wise financial decisions.”

Advisers might want to use Military Consumer Protection Day, observed July 16, as an opportunity to show they are “conscious of protecting those who defend our country.” The NFCC also urges advisers to direct military and nonmilitary clients to its Sharpen Your Financial Focus program, sponsored by Wells Fargo. The program presents 10 financial wellness lessons ranging from the basics of personal banking to best practices for planning and investing for retirement.

NFCC says military members can further polish their financial skills using a one-on-one financial review through its financial focus program. Group workshops and the “MyMoneyCheckUp,” a financial self-assessment, are also available, the NFCC says. 

Opportunities to improve financial skills can help service members face unplanned financial circumstances with a better chance of success. “Stressful situations can result in poor choices, with decisions often made out of desperation,” Cunningham says.

More information is available on NFCC’s website.

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