In the last decades, pension funds and other institutional investors have significantly increased their allocations to alternative assets: however, until today, there is no empirical research that evaluates this growth. In the pension fund industry, experts point at two important reasons for the growing interest in alternative assets: historically low interest rates and trends in portfolio diversification. The aim of this article is to assess whether these factors actually have an impact on the investment behaviour of pension funds in alternative assets. For this article, we analysed the CEM Benchmarking Inc. database with pension funds from North America, Europe, Australia, and New Zealand. The empirical analysis includes 890 pension funds for the period 2000–2015. The results confirm that portfolio diversification trends play an essential role in the growing popularity of alternative assets, most probably because these assets allow the pension funds to optimize their portfolio structure. Furthermore, our results reject the popular belief that pension funds have increased their allocations to alternative assets because of the low interest rate environment; in contrast, our findings suggest that pension funds invest more in alternative assets when interest rates are higher.