Most alternative investment asset classes — both in U.S. defined contribution and defined benefit plans — realized stunning asset increases in the year ended Sept. 30, according to the findings of Pensions & Investments' Top 200 retirement plan survey.
Defined contribution plan assets in commodities, Treasury inflation-protected securities and real estate investment trusts — the three stand-alone alternative investment categories tracked by P&I in DC plans — grew substantially compared with the year-earlier survey. REITs were up 44% to $3.6 billion, TIPS grew 19% to $8.7 billion and commodities rose 60% to $800 million. However, much of the alternative investments in defined contribution plans are contained in target-date funds. (See related story above.)
Growth of REITs, TIPS and commodities was on overdrive compared with P&I's year-earlier survey. REIT assets for defined contribution plans in the top 200 dipped less than 1% in the year-earlier survey, while TIPS rose 7% and commodities grew 21%.
Among defined benefit plans in the top 200, many alternative investment asset classes continued the double-digit rise exhibited in the year-earlier survey. Equity real estate rose 11% to $235.1 billion; commodities rose 20% to $24.7 billion; REITs were up 30% to $22.4 billion; infrastructure was up 25% to $8 billion; and energy jumped 67% to $7.5 billion.
Growth in equity real estate, REITs and commodities were boosted by strong returns during the survey period. For the 12 months ended Sept. 30, the NCREIF Property index was up 11%, the FTSE NAREIT All REITs index was up 34.37% and the FTSE NAREIT All Equity REITs index was up 33.81%. The Dow Jones-UBS Commodity Index Total Return index was up 5.99% in the period.
Private equity investment in defined benefit plans was the sole exception to the growth story, dipping less than 1% to $310.6 billion. Venture capital dipped 1.7% to $34.2 billion, while buyouts rose 4.6% to $179.3 billion. Private equity's share of the DB plan assets in the top 200 was down 60 basis points to 9.4%.
The scenario is quite different from the previous year's survey, which showed a 16% increase in private equity, a 26% increase in venture capital and a 15% jump in buyout assets.
Industry insiders say the decrease could be explained by increased distributions some investors received in the third quarter of 2012.
“It was a pretty robust third and fourth quarter for distributions for investors with mature private equity programs. Pantheon had record levels of distribution activity,” said Susan Long McAndrews, San Francisco-based partner, and head of U.S. primary investments of global private equity investment firm Pantheon Ventures.
Ms. McAndrews leads Pantheon's North American primary fund investment activity.
According to preliminary data from Cambridge Associates LLC, distributions from U.S. private equity funds rose 11% to $20.4 billion in the third quarter.