Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
November 24, 1997 12:00 AM

ALTERNATIVE COMMITMENTS SOAR: SURVEY FINDS 57% INCREASE SINCE 1995

Terry Williams
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Commitments to alternative investments by the largest pension funds, endowments and foundations in the United States and Canada grew to $91 billion -- a 57% increase -- since 1995, a new survey shows.

    The survey -- "Report on Alternative Investing by Tax-Exempt Organizations" -- was conducted by Goldman, Sachs & Co. and Frank Russell Capital Inc.

    Since their last report, in 1995, Goldman and Russell found:

    Public pension funds have increased their commitments to alternative investments at almost double the rate of corporate pension plans -- 31% vs. 17%. Public fund commitments to alternatives now stand at $44 billion.

    The average dollar commitment to alternatives by endowments and foundations more than doubled, to more than $1 billion from $455 million.

    International private equity has been the fastest growing alternative investment category -- increasing 60% to 9.3% of total commitments vs. 5.8% in 1995 and 1% in 1992, the first year the survey was conducted.

    Net returns in the four major alternative investment categories -- venture capital, leveraged buy-outs, international private equity and mezzanine financing -- matched or exceeded respondents' expectations since the last survey.

    The survey examined pension funds, endowments and foundations with total assets greater than $3 billion. Of the 213 organizations in the sample, 154 responded and 119 invest in alternatives.

    Committed to alternatives

    While smaller funds were not included, the survey suggests they, too, are increasing their commitments to private equity.

    Commitments to alternative assets by the 15 largest respondents increased a compound annual 20% between 1995 and 1997. But commitments by all respondents surged 25%.

    "The smaller funds (within the survey) are growing faster," said Thomas Healey, managing director with Goldman Sachs in New York.

    "What we are hearing is the smaller funds are taking note of what the big funds are doing and they want to play the game," said Paul Kaltinick, managing director at Frank Russell in Tacoma, Wash.

    The popularity of international private equity and the ascendancy of public pension funds as investors are the most striking elements of the Goldman/Russell survey.

    According to the Goldman/Russell survey, 50% of the respondents indicated international private equity will be the most attractive area for investment in the next three years.

    International private equity should exceed 10% of all alternative commitments by early next year, the survey said, thanks to the growing appetite for international investments and the increased number of international alternative vehicles coming to market.

    "In the first (survey) there was zero interest in international private equity," said Mr. Healey.

    "The last time it was the category with the most change, but it wasn't as popular as this time," he said.

    Of the 50% of respondents who were attracted to international private equity, one-third of themsaid the developed markets were attractive and about one-sixth said the emerging markets were attractive.

    Latin America is popular choice

    Within the overall commitment to international private equity, Latin America showed the largest percentage gain in commitments in the two years between studies, growing to 10.7% of total commitments from 4.7%.

    China cooled off during the past two years, dropping to 2% of international commitments from 7.2% two years ago.

    Overall, 61.2% of international private equity commitments went to the developed countries and 18.8% went to the emerging countries of Asia, according to the survey.

    Mr. Kaltinick said recent economic turmoil in Asian developing economies will slow private equity commitments to funds targeting deals in those countries.

    Corporate funds lead way

    Corporate pension funds continued to lead the way in commitments to international private equity -- with 8.6% of total commitments earmarked for the category.

    But public pension fund respondents surged past their corporate peers in the total amount they committed to alternatives, according to the survey.

    Commitments to alternatives by public fund respondents have reached $44 billion, compared with $37 billion by corporate fund respondents, the survey states.

    During the past two years, public funds increased their alternative investing commitments by almost double the rate corporate funds did.

    Two years ago, corporate pension fund respondents committed a total of $27 billion to alternatives, compared with $26 billion for public pension funds.

    Who are fully funded

    Many corporate pension funds are fully funded while public pension funds continue to grow, said Mr. Kaltinick.

    The bulk of the commitments to alternatives -- 57.2% -- by public pension fund respondents went to leveraged buy-out funds.

    Corporate pension funds committed 49.5% of their alternative assets to buy-out funds.

    Overall, corporate pension fund respondents committed a greater portion of their total assets to alternative investments than did public pension fund respondents, 7% and 4% respectively.

    Overall, endowments and foundation respondents committed the largest portion of their assets to alternatives -- 16.6% of the total assets.

    To boost returns

    Respondents said they invest in alternatives to boost returns over traditional investments.

    They haven't been disappointed, according to the survey.

    Actual annualized net returns between 1995 and 1997 for venture capital, buy-out funds and mezzanine financing all exceeded expected returns, the survey states.

    International private equity returns matched investor respondents' expectations.

    Venture capital returned an annualized 32%; its expected return was 16%.

    Returns higher than expected

    LBO funds returned 20% vs. an expectation of 17%; international private equity returned 18%, matching its expected rate of return; and mezzanine financings generated an 18% return, compared with an expectation of 11%.

    During the next three years, respondents expect annual net returns for alternative investments to be 17% on average, 700 basis points higher than their expected return on the U.S. equity market, the report states.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    A Good Time for Trend Following
    Sponsored Content: A Good Time for Trend Following

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit