Super funds reduced new commitments to alternative investments in 2008 amid a tepid decline globally in alternative assets due to capital calls and some hedge funds freezing redemptions, new research has found.

Watson Wyatt’s Global Alternatives Survey for the year to December 2008, which analyses the Top 100 alternatives managers by assets under management, found alternative assets managed on behalf of pension funds by the world’s largest investment managers fell by around 1 per cent to US$817 billion (A$1.03 trillion) last year.

This modest decline contrasted with a 40 per cent increase in the amount of alternatives invested with top managers during 2007, compared to 2006.

The survey covered 143 funds managers and US$872 billion in assets across real estate, private equity fund of funds, fund of hedge funds, infrastructure and commodities.

Ross Barry, head of portfolio construction group at Watson Wyatt Australia, said while super fund inflows into alternatives continued, this was largely a result of commitments made in previous years and was broadly offset by downward revaluations.

“Particularly with private equity and to a lesser extent infrastructure, a lot of Australian super funds made commitments during 2005 to 2007 and with private equity that money then gets subsequently called down over the following two to four years,” he said.

“So even though a lot of [funds] stopped or significantly slowed down the pace of new commitments, they’re still getting capital calls in respect of commitments from a year or two ago.”

The rate at which capital was returned to investors also slowed sharply as normal markets disappeared, and some managers imposed freezes on redemptions, Barry added.

Those two effects had pushed assets in the market up, however further downward revaluation, particularly in the unlisted markets, is expected to lead to a more significant net decline in global assets under management this year

“In the survey we see it most poignantly in the UK and Europe; there were a lot of very significant write downs of assets during 2008,” Barry said. “It’s really only been the first half of this year that we’ve seen a bit of an acceleration in some of the revaluation of real estate assets here in Australia.”

The research indicates allocations to alternative assets have continued to rise and now account for 17 per cent of all pension fund assets globally, up from 7 per cent 10 years ago. 

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