Pension Fund Desperation Is Bullish For The Hedge Fund Industry

Earlier today, Barclays Capital initiated coverage of Apollo Global Management and KKR & Co. with overweight ratings.  According to their note, “Hedge fund and private equity managers alike note a very active dialogue environment with pension funds, which, looking at anemic returns among traditional liquid securities, are in search of investing strategies that can deliver at least high-single-digit per cent returns to cover the roughly 8% return assumptions built into their actuarial models to cover rising costs of retirement obligations.”

This follows Citigroup’s bullish comments on the alternative asset manager sector.  With regard to Operation Twist, they note that “if the Fed is successful and drives down longer-term rates even further, the action should widen out already problematic pension plan funding gaps.”  They provide this chart:

Citi Pension Funding Gap

Citi added “with widening funding gaps + specter of low ST and now seemingly intermediate term interest rates, plan sponsors are likely to further allocate toward more proven alpha generators.” Citi also likes Apollo Global and KKR.

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