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Alternative Investments Increase in Pension Plans

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Nearly two-thirds of pension plans utilize alternative investments, a Sept. 13 SEI Quick Poll found, and their use is increasing. In 2008, 51% of pension plans were invested in alternatives; in 2009, their use increased slightly to 53%. This year, 65% of plans invest in alternatives.

In addition to the increase in plans using alternative investments, executives are investing larger percentages of their portfolios in alternatives. Among plans with over $300 million in assets, 77% have 11% or more invested in alternatives. Forty-two percent of smaller plans have 11% or more invested in alternatives.

The most common alternative investments identified by the poll are real estate (77%), private equity (54%), funds of hedge funds (47%), and single manager hedge funds (30%).

Wealthy investors are more likely to use alternative assets in their pension plans. Eighty-four percent of plans with more than $300 million in assets use alternative investments, compared with 53% of plans with less.

Pension executives’ priorities are shifting, the poll found. Funded status was rated more important than absolute returns by “nearly all” respondents.

“Funding deficiencies are getting the attention of various stakeholders in companies and, as a result, boards and senior management are looking for long-term strategies as this scrutiny continues,” Jon Waite, director of investment management advice and chief actuary for SEI’s Institutional Group, said in a press release.

“In particular, alternative investments are being integrated into the portfolio as another channel for mitigating overall risk, while providing additional return,” he added.


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