Preqin: UK pensions allocate almost a quarter of AUM to alternatives
UK pensions are allocating almost a quarter (24 per cent) of assets under management (AUM) to alternatives, according to data from Preqin.
The allocation to alternatives is higher than public equities, at 19 per cent. For UK pensions that report specific alternative asset class allocations, the weighted figure is even higher, at 39 per cent (against a 41 per cent alternatives allocation target).
According to Preqin, the asset classes with the highest target allocations from UK pensions are private real estate and unlisted infrastructure, at 10 per cent and eight per cent respectively, attracted by the cash yields that real assets provide.
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The report, Fundraising from UK Pensions: A Guide to Raising Capital, revealed that UK pensions are becoming more selective with their capital commitments to alternatives.
In the fund vintage year 2023, UK pensions committed £8.18bn across 146 commitments. In comparison, 2021 saw a similar aggregate amount committed, £8.61bn, but across 237 commitments.
Meanwhile, it’s estimated that the UK pensions industry had £3.8tn in assets at the end of 2023, with defined contribution (DC) and defined benefit (DB) taking equal shares at £1.9tn.
Preqin analyst Salik Ahmed noted that pension availability shows further potential growth – 26 of the 27 million DC scheme members are in funds still open to new joiners. This trend coincides with policy that is encouraging further alternatives allocations, while DC capital from younger generations aligns with alternatives’ longer investment lock-in periods.
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Preqin data shows that long term asset funds (LTAFs) launched in the UK this year are set to exceed those of 2023, with six launched in H1 2024 alone compared to seven in 2023.
The Mansion House Compact saw 11 of the largest UK DC pensions pledge to commit five per cent of default funds to unlisted equities by 2030.
“The UK pension industry’s reassessment of the traditional 60/40 portfolio model has resulted in a significant reduction in their public equity exposure, which has facilitated an advance into alternatives,” said Ahmed.“Looking at private debt specifically, fund managers are believed to be targeting commitments through UK pensions’ fixed income allocations. However, Preqin data suggests that there may be challenges here, as UK pension private credit allocations tend to be held separately (42 per cent) or as part of more than one specific allocation (19 per cent), with just three per cent using a fixed income allocation.”
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