The World’s Largest Funds are Leaning More on Private Investments

The world’s largest global funds are continuing to rely on private investments.

The ten biggest funds have doubled their holdings in private investments—including private equity, real estate, infrastructure, and other assets—since the global financial crisis in 2008, according to a new Bloomberg analysis.

For funds like China’s $1.2 trillion sovereign wealth fund and California’s $470 billion public pension, these private investments have provided a safety net against the volatility of the inflation and rising interest rates, which have steamrolled many investors for months.

The top ten investor list, which holds a combined AUM of $7.7 trillion, includes Japanese and Canadian pension funds, as well as sovereign wealth funds in Scandinavia and the Middle East.?

The private holdings include a wide variety of alternatives. From infrastructure holdings such as toll roads, airports, seaports, and renewable infrastructure like wind farms, to real estate portfolios and even hedge funds.

Private assets have proved vital for these global funds. Norway’s $1.2 trillion sovereign wealth fund was able to limit its losses to 14.4% in the first half of this year thanks to a 7.1% gain in unlisted real estate. To compare, global equities fell 21% over that same period, according to the analysis.

Korea’s national pension service saw its alternative portfolio climb 7.3%, lessening its overall losses to 8% in the period. Meanwhile, Japan’s pension fund saw its private investments return 21.4% in the year to the end of March, a 4x increase compared to its broader holdings.

Australia currently has more than half of its $150 billion in assets in alternatives.

It’s worth noting that there is no guarantee when it comes to private asset returns and some pension executives are erring on the side of caution when it comes to understanding heightened returns. For example, the positive returns of alternatives could indicate that private managers haven’t yet marked their portfolios to reflect general market conditions, according to N.P. “Narv” Narvekar, the CEO of Harvard Management Company, which operates the university’s endowment.?

Furthermore, private equity and other unlisted assets are rarely valued, according to Bloomberg’s analysis, a factor that can allow these assets to falsely appear attractive.

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