Real assets lead Q2 US public pension allocations

Real assets were the most popular strategy among the largest US public pension plans during the second quarter, according to Atlanta-based research firm eVestment.

Drawing on an examination of 250 of the largest US public pension plans, the strategy came out on top with 85 commitments, eVestment said in a Wednesday statement.

Private equity and private debt earned 68 and 29 commitments, respectively, securing the second and third spots. Fewer allocations were reported for equity, fixed income, hedge fund, multi-asset and fund of funds strategies.

The 85 Q2 real asset commitments reported by eVestment outpaced both the 70 commitments reported during Q1 and the 46 commitments shown for Q2 of 2016. According to the data released by eVestment, allocations to real asset strategies by the largest US pension plans have increased every quarter since the first quarter of 2016, the beginning of their data set, when there were just 36 such commitments.

“US public pensions are continuing to place capital with real assets and private equity funds as they seek to diversify their portfolios and increase exposure to higher-return and income-generating asset classes,” eVestment director of private markets solutions Graeme Faulds said in the statement. “The trend is clear for these asset classes: there is likely going to be continued flows of new money in that direction and managers need to be ready for it.”

At a June media luncheon, Aberdeen Asset Management head of real assets Jim Gasperoni said that the surge of interest in real assets over the past decade has actually complicated the search for income-generation that has helped attract some new investors into the asset class. “Our view is that to pay for what is believed to be a portfolio stabilizer, a de-risking element of your portfolio, is actually getting pretty expensive. In essence, rather than stabilizing your portfolio, you are probably limiting your flexibility,” Gasperoni said.

In response, he suggested investors focus on real asset opportunities that offer the chance to generate income after a period of development, such as vineyards, orchards and permanent crop plantings.

“There is actually a pretty meaningful discount from the development cost of doing that versus what people are willing to pay once those operations become productive. As a consequence, if you look at the income profile, you can double your income potential on something like that if you’re willing to wait two to three or four years to get it.”