Pension funds turn to alternatives in hunt for yield

20 June 2014   Category: News, Asia, Global, Hong Kong, USA, Canada   By Derek Au

Pension fund managers are increasingly allocating to alternative investments, such as real estate, infrastructure and private equity, amid a prolonged low-interest rate environment that has dampened yields on fixed-income assets.

Speaking on a panel at the FT Asset Management Summit 2014 in Hong Kong, of which Asia Asset Management was a media partner, Deborah Orida, senior portfolio manager, public investments, Canada Pension Plan Investment Board (CPPIB), said that the fund has been investing in real estate and infrastructure for ten years. The CPPIB, which has AUM of C$219 billion, said that this included direct investment into projects.

“In part, it was the evolution and development of our internal capabilities. That’s a team that we grew internally, and over time, we’ve become more sophisticated, hired more talent and felt more comfortable,” Ms. Orida said.

Lockheed Martin Investment Management, which invests the retirement savings of the US-based defence giant’s thousands of employees, has also stepped up allocations to alternatives.

Asian head of private investments, Denis Tse, said that its total allocation to alternative investments had also significantly increased. “It’s a big task to do if you think about it. Think about the timeframe, the resources that are needed, and obviously, when you are wrapping up such an exposure. J-curve impact is something we need to pay attention to. So internally, how we address the J-curve impact leads to diversification of strategy approaching different facets of private equities.” He added that the investment manager would look into opportunities of co-investment in malls and seek to establish collaborations with asset owners.

Jeff Schutes, senior partner, investment business leader, growth markets, Mercer Investments, also agreed that asset classes such as infrastructure and real estate have been drawing greater interest. “We are seeing a tremendous amount of activities moving away from home country buyers, looking for other types of asset classes and we are seeing again a lot of more diversified asset classes which we can get longer-term yields,” Mr. Schutes said.