The demand for alternative investment from the world’s largestinstitutional investors is growing, drawing more dollars as well asnew types of investors, according to research by TowersWatson.

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The firm’s latest annual Global Alternatives Survey, produced inconjunction with the Financial Times, shows that the totalassets managed by the world’s top 100 alternative investmentmanagers hit $3.3 trillion in 2013, up from $3.1 trillion in2012.

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Its analysis of seven alternativeasset classes, and seven investor types, shows the overallcontinued demand for alternatives is led by real estate investmentsand pension funds, respectively.

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Pension fund assets represent one-third (33 percent) of theworld’s largest alternative portfolios, it said. By comparison,wealth managers hold 18 percent of all alternative assets andinsurance companies 9 percent. Sovereign wealth funds, banks, fundsof funds, and endowments and foundations were the other types ofinvestors measured.

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“Pension funds continue to search for new investmentopportunities, and alternative assets have been an area where theyhave made, and continue to make, very significant allocations,”said Brad Morrow, head of Towers’ manager research for theAmericas.

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Alternative assets now account for 18 percent of allglobal pension assets, up from 5 percent 15 years ago, saysMorrow.

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The 100 biggest pension funds hold about $1.36 trillion inalternative investments. Real estate funds account for the biggestchunk of that – $478.4 billion.

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Morrow says pension funds are also at the forefront of investingin newer alternatives, such as real assets and illiquidcredit.

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They definitely are continuing to place their faith in privateequity. Private equity in the 100 biggest pension funds accountedfor almost $200 billion in this year’s survey, and private equityfunds of funds, considered to be its own asset class by the survey,accounted for nearly $265 billion.

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With pension funds, and even more so with other classes ofinstitutional investors, “alternative” investments may no longer beappropriately named, according to Morrow.

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“Most of the traditional alternative asset classes are no longerreally viewed as alternatives, but just as different ways ofaccessing long-term investment themes and risk premiums,” explainsMorrow.

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“As such, allocations to alternatives will almost certainlycontinue to increase in the long term.”

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The top 25 alternative asset managers of wealth management haveabout $426 billion under management, similar to the amount in 2012,but still more than insurance companies, whose allocations toalternative assets are up 13 percent this year to $275billion.

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Managers of bank assets decreased their allocation toalternatives by 23 percent, reducing the holdings of the top 25managers in that class to $124 billion.

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