Alternative investments by pension funds increased 10.6% to $134.9 billion in the 12 months ended Sept. 30, with most of the money flowing to hedge funds and distressed debt, according to Pensions & Investments' annual survey of the nation's largest plan sponsors.
Investment in hedge funds rose 69% to $14.4 billion, with some $6.1 billion directly invested in hedge funds and another $8.3 billion in funds of funds.
In other alternative classes, the survey showed distressed debt investment grew by 55% to $5.9 billion; and other private equity rose 13%, to $82.4 billion.
The pension fund reporting the largest hedge-fund-of-funds investment was the Pennsylvania State Employees' Retirement System, with $3 billion. Tops in direct hedge fund investments were General Dynamics Corp., Falls Church, Va., with $2 billion, and General Electric Co., Fairfield, Conn., with $1.3 billion.
While not covered in the survey period, PennSERS' hedge-fund allocation grew even larger in late 2003. Trustees of the Harrisburg-based fund approved a new asset allocation in December, giving the fund a 20% exposure to absolute return strategies, up from 10%. Under that new target, its total allocation to absolute return strategies — invested through funds of funds — will be almost $5 billion.
The Pennsylvania School Employees' Retirement System, Harrisburg, reported the largest distressed debt investment, at $1.3 billion, followed by General Motors Corp., Detroit, with $658 million, and the Washington State Investment Board, Olympia, with $554 million.