GLOBAL - Pension funds will allocate more to private equity than to real estate over the next three years, according to a survey published by Citigroup.
Lead researcher Prashant Bhatia, an analyst at the world's largest bank, surveyed 50 chief investment officers at US and European pension funds with collectively more than $1trn (€0.70trn) in assets under management.
He found pension funds would increase their allocation to alternative assets, including real estate, by more than 30% over the three-year period. As a result, alternative allocations will rise from their current 14% to 20% by 2010.
Of that, $370bn will go to real estate. However, the chief beneficiaries of increased investment in alternatives will be private equity firms. Pension funds will invest $400bn in the asset class because it offers returns of up to 15%, compared with real estate returns of 10%.
Hedge funds are expected to receive $290bn, with $160bn going into alternative alternatives such as commodities and energy, according to the research.
However, the study found significant differences between US and European managers' expectations of returns from real estate investments. European managers currently allocate 50% of their alternatives portfolio to real estate, compared with 25% in the US, although almost half of US managers expect property returns above 10% compared with 18% of European managers.