Alternatives gain momentum with institutional investors

By BenefitsPro

By Dan Berman

Institutional investors including pension funds last year doubled the amount of new money they put into Towers Watson’s smart beta strategy that uses alternative indices as their basis, the company reported.

The investments reached $11 billion over 180 portfolios compared to $5 billion in 2012, the company said. The total amount allocated at the end 2013 to the strategy was $32 billion in 500 portfolios.

Alternatives, which are gaining in popularity, are four times what they were five years ago, the company said. The most popular of such investments were real estate (more than $4 billion, with a quarter in smart beta), direct hedge funds (more than $2 billion, a third in smart beta) and infrastructure ($1.5 billion, a third in smart beta).

Towers Watson noted the strategy has gained traction slowly since it was first developed more than a decade ago.

“These figures confirm a longer-term trend of investors seeking greater efficiency, diversification and diversity in bond mandates, for example, favoring global solutions over a home-market bias, and an increasing acceptance of alternative credit asset classes into the strategic asset mix,” said Craig Baker, global head of investment research at Towers Watson, in a statement.

Among the company’s clients bond allocations totaled $22 billion, with half in global mandates and $5 billion in U.S. mandates.

Global mandates biggest allocation were in equities, coming in at $10 billion of a total of about $24 billion in stocks. U.S. equities captured $3 billion.

Baker noted that the allocations followed trends in which investors are moving from local markets to global ones. He said the amount of equity mandates doubled last year with assets tripling compared to 2012.

Towers Watson has about $60 billion in assets under management in the U.S. and $2 trillion worldwide.

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