A recent article in Global Pensions  examines the role of the institutional investor ( pensions, endowments, etc.) and the movement that have occured in the commodity markets.

“In the search for diversification, appetite for this asset class has continued to grow, with schemes making increasingly meaningful allocations, particularly as equity markets have foundered: Switzerland’s CHF37bn AHV Ausgleichsfonds invested 5% of its assets (CHF1.85bn/$1.75bn) in commodities last year; Progress, Unilever’s €4bn Dutch pension fund, said it was on target to double its commodities allocation to 4% of assets, approximately €160m ($2.5m), by the end of 2008; and the UK’s Royal County of Berkshire Pension Fund recently said it was considering a £150m ($296m) investment, 10% of total assets.

“These kinds of inflation-linked assets are particularly useful to pension funds since obligations to our members can increase as inflation increases,” said Clark McKinley at CalPERS, which has allocated $1.4bn to commodities since March 2007. “This is a long term programme aimed at diversifying our portfolio and giving us a hedge against inflation that doesn’t move in tandem with the stock market.”

It’s not suprising that many pension funds have upped their commodities allocation over the last several years.  With the volatility that has occured in recent months, the question is… will they continue to do so? I believe that they will continue to do so. While the “bull market” returns have been a positive addition to their portfolios, many institutional investors are attracted to the diversification component. With inflation on the rise, a bear market in stocks, I expect the allocation to the commodities and managed futures sectors to increase.

Balarie Capital Management works with Pensions, Endowments, and Insitiutional Investors regarding their commodities and managed futures investments. Please contact us or access our managed futures database for more information.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.  THERE IS SIGNIFICANT RISK OF LOSS WHEN TRADING FUTURES AND OPTIONS. ALWAYS REVIEW A DISCLOSURE DOCUMENT BEFORE INVESTING IN ANY MANAGED FUTURES PROGRAM.