After filing a recovery plan earlier in the year, the Dutch pension fund Stichting Pensioenfonds ABP has experienced an increase in payments following the death of Michael Jackson on June 25, and the subsequent increase in his music’s popularity.

As a method to diversify its portfolio, ABP and CP Master BV established the music publishing investment fund, Imagem Music Group. The fund is valued at approximately US$700 million and currently manages the publishing rights to more than 100,000 songs, including some of Jackson’s better known hits.

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Imagem has owned the rights to Jackson songs since February 2008, when it bought several catalogs from UMG. In the week following his death, Jackson had the three bestselling albums in the U.S. In spite of recent events, ABP doesn't expect to raise its estimate for the return on its total music publishing portfolio in the immediate future.

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Allocations to alternative assets dip

"In spite of poor short-term performance, the demand for alternative assets by pension funds aiming to diversify their portfolios and access skill remains,” says Carl Hess, global head of investment consulting at Watson Wyatt. “As a result, inflows continued last year which, combined with their illiquid nature and less negative performances than pure equity, resulted in only a marginal decline in assets. However, according to our research, allocations to alternative assets have continued to rise and now account for 17% of all pension fund assets globally, up from 7% ten years ago."

Data from the top 100 alternative managers shows that real estate managers dominate, accounting for around 58% of assets (down from 62% in 2007), followed by private equity fund of funds, fund of hedge funds, infrastructure and commodities. As with real estate, hedge funds assets (13% of assets) also diminished in 2008 with both private equity (20% of assets) and infrastructure (9% of assets) being the beneficiaries, while commodities assets remained relatively small (less than half a percent of assets).

Hess says while good investment opportunities exist in this area, investors should be watchful of the structure of some of these mandates and pay special attention to the "net of fees" proposition.

According to the broader research, just over half (52%) of alternative assets managed on behalf of pension funds are invested in North America, while a third are invested in Europe and 11% in Asia-Pacific.

In light of the changing market environment, Hess expects new trends in the area. Some developing trends include subjects on transparency, particularly the separate identification of alpha and beta, as well as an increased focus on risk, both from investors and managers alike. Another area of growing interest is direct investment in private equity and hedge funds, and greater focus by pension funds on the governance requirements needed in this area.