US pension funds to increase real estate, private equity allocations

A new JPMorgan survey has found that roughly one-third of US public pension funds will increase their allocations to real estate.

Nearly one-third of corporate and public pension funds plan to increase their commitments to private equity funds, while a slightly lower number plan to increase their commitments to real estate, according to a new report.

The JPMorgan Asset Management Survey—Pension Investment Strategies for a New Playing Field noted that 3 percent of corporate funds intend to decrease their private equity allocations, but 27 percent intend to increase their allocations to the asset class. As for public pension funds, 31 percent intend to increase their private equity commitments and none plan to decrease them, the survey found.

Real estate was similarly popular. The asset class will lose a relatively small amount from pension funds: only 1 percent of corporate funds and 2 percent of public funds will decrease their allocations to real estate, while 11 percent and 28 percent will increase their commitments, respectively.

Pension fund managers are increasingly shifting their allocations to higher-return asset classes in an effort to close their funding gaps. The report noted that 43 percent of corporate and public pension funds are currently underfunded. Return expectations, on average, across all asset classes are approximately 8.1 percent.

The survey also described pension funds’ plans for other allocations. Thirty-two percent of corporate funds and 15 percent of public ones intend to decrease their equities investments, while only 5 percent and 2 percent, respectively, will increase them.

Plans for fixed income allocations showed a nearly inverse profile between corporate and public funds, with 25 percent of corporate funds planning to increase their investments in this area and only 9 percent of public funds planning on doing the same.

Eight percent of corporate funds and 28 percent of public funds plan to decrease their fixed income allocations.

Only hedge funds showed no sign of slowing. Seventeen percent of corporate funds plan to increase their commitments in this area, and 22 percent of public funds will do the same. No funds plan to decrease hedge fund allocations.

Schulman, Ronca & Bucuvalas, a research firm, conducted the JPMorgan-sponsored survey via telephone between June 14 and July 27 of this year. The respondents were chief executive officers, chief investment officers, treasurers and directors of pensions and investments from 138 US pension plans that account for approximately $845 billion (€650 billion) in assets. In addition to public and corporate plans, the survey included Taft-Hartley and non-profit plans. Some, but not all, are clients of JP Morgan Asset Management.