Assets invested in hedge funds by defined benefit plans grew faster than any other large alternative investment asset class in the year ended Sept. 30, according to data from Pensions & Investments' annual survey of the nation's largest retirement funds.
P&I's survey results chart the ongoing move into direct hedge fund investments from hedge funds of funds by many large pension funds. More narrowly, the data demonstrate that even as public pension funds played catch-up in building their hedge fund portfolios in the year ended Sept. 30, a fair number of corporate plans significantly reduced their portfolios.
“Public pension plans are the third wave of significant institutional hedge fund investors after family offices and endowments and then corporate pension plans. They still are moving a lot of money into hedge funds,” said Joseph F. Gieger, managing director, Americas, at hedge fund and hedge funds-of-funds manager GAM USA Inc., New York.
“Public funds that were at the front end among their peers in investing in hedge funds of funds now are moving directly into hedge funds, Mr. Gieger added.
Assets directly invested in single- and multistrategy hedge funds leapt 15.1% to $115 billion as of Sept. 30 from $100 billion on the same date a year earlier.
Hedge funds-of-funds investments by defined benefit funds among the 200 largest retirement plans, on the other hand, declined 3.1% to $35 billion in the year ended Sept. 30.
The combined $150 billion total of direct hedge fund and hedge funds-of-funds investments as of Sept. 30 represented a 10.3% rise from the prior year.
Despite strong growth in hedge fund investments as of Sept. 30, the alternative investment category represented just 3.4% of the $4.5 trillion of defined benefit plan assets of the 200 largest U.S. retirement funds, up from 3.3% the prior year. Assets of the 200 largest defined benefit plans overall rose 9.7% in the year.