More and more alternative investments in the portfolios of welfare investors

The third Mefop Observatory on alternative investments of pension funds, social security funds and health funds highlights the constant growth of these asset classes in portfolios.
The survey was carried out using the Cawi method between July and November 2022 and 101 entities participated (72 pension funds, 17 social security funds and 12 health funds) representing assets equal to over 233 billion euros.
The report takes into account a further growth in the institutions that declared they hold alternatives which stood at 59.4% (50% in 2020).
This growth is essentially due to the dynamics underway in pension funds, among which the percentage that declared investing in alternatives went from 46.6% in 2020 to 58.3% in 2022 (+25%).
For pension funds, allocation to alternative assets represents a consolidated practice: all 17 participating institutions envisage the use of non-traditional investments.
Interest from health funds remains lukewarm.
The main reasons for the lack of investment are represented by the limited size of the assets (31.7%) and the weakness of the control structures (29.3%): With respect to the possibility of investing in alternatives in the future, among pension funds there is a substantial willingness to evaluate future opportunities (70%), although the existence of a hard core that excludes any investment in the future is confirmed (16.7%).
The flare-up of inflation caused by the Russian invasion of Ukraine does not appear to have changed the approach to alternative investments.
62.9% of pension funds declared that the coverage already active was adequate for the new context: For pension funds the main reason for investing in alternatives is represented by the need to increase portfolio diversification (83.3% of the responses ).
As anticipated, pension funds represent the main investor in alternatives among those participating and in this case the first reason for the investment is represented by the profitability expected from such investments (47.1%).
The main non-traditional asset class in the portfolio is represented by real estate (11.7%), held largely through real estate funds (10.4%) and to a lesser extent through direct investments (1.3%).
Loans in other non-traditional asset classes are much more limited (private equity 3.5%, infrastructure 1.8%, liquid alternatives 0.5%, private debt 1.6%).
Despite being subject to different regulations, pension funds and funds invest in alternatives mainly by subscribing to shares of alternative funds (94.1% for social security funds, 74.1% for pension funds).
The use of mandates is essentially used by pension funds (28.6%), in line with the affiliated management model envisaged by sectoral legislation.
Regarding the choice to invest independently or through consortium initiatives, 94.1% of the funds and 76.2% of the pension funds declared that they invest independently, citing as the main reason the greater autonomy and consistency with the strategic asset allocation and objectives long-term (62.5% Banks and 59.4% Pension Funds).
Approximately 50% of the alternative subjects declared that they foresee a geographical focus, motivating it above all with the possibility of supporting investments in the real domestic economy.
In this regard, it is worth mentioning the launch, in recent months, of various consortium initiatives in the sector of occupational pension funds.

Author: Hermes A.I.

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