Public and corporate pension plans are following the lead of endowments and foundations into greater allocations in alternatives and international equities, according to Greenwich Associates annual asset allocation report.
Public plans had an average allocation of 1% in hedge funds in 2007, an 83% increase from the previous year, while the average hedge fund allocation for corporate plans was 2.9%, a 32% gain. The average allocation to international equity jumped 11.5% for public plans and 25% for corporate plans, to 21.4% and 20%, respectively.
Meanwhile, the average allocation to U.S. equities fell for the fourth consecutive year for both public and corporate pension plans. Public plans averaged 38.2% in domestic stocks, down 10.3%, while corporate plans averaged 39.9%, a 9.3% decline.
Remaining allocations for public plans were 27.6% fixed income, 5.6% equity real estate and 4.4% private equity; corporate plan allocations were 29% fixed income, 3.7% private equity and 3.3% equity real estate. The report did not break out endowment and foundation allocation data.
Officials at pension plans, endowments and foundations said they will continue to increase investments in private equity, hedge funds, equity real estate and active international equity at the expense of active and passive U.S. equities and domestic fixed income, Greenwich said. Plan sponsors believe low-correlated alternative investments improve diversification, while international stocks will outperform domestic ones, according to Greenwich.
The report was based on interviews with officials at 577 corporate and 234 public pension plans, and 233 endowments and foundations.