Domestic equity allocations among the largest U.S. pension funds, endowments and foundations declined for the third straight year in 2002, to an average 46.8% of total assets, from 49.4% a year earlier, according to a Greenwich Associates study of asset allocations. It also found that the key driver of asset growth in 2002 was alternative investments, as it was in 2001; however, private equity, equity real estate and hedge funds combined accounted for only 7.5% of total assets. More plan officials expected to shift more money into hedge funds and private equity than to reduce allocations to those asset classes.
In addition, reversing a five-year decline, allocations to real estate also increased in 2001 and 2002 because of strong performance and the investors’ search for alpha. Public funds raised their average equity real estate allocation to 4.2% in 2002, from 3.9% in 2001, while corporate funds raised it to 2.3%, from 2.1%.
The average fixed-income allocation rose to 27.8% in 2002, from 26.4% in 2001, but the trend is not expected to continue; no one in the industry "believes there’s much of a spark left in that asset class,” according to the study, which was based on interviews with more than 1,000 pension funds, foundations and endowments.