The JPMorgan Alternative Asset Survey 2007 reveals that institutional investors in Europe intend to pour almost €104bn into alternative asset classes over the next two-to-four years, with the bulk of new money coming from existing investors.
Real estate managers are expected to claim 26 per cent of this additional investment, with 16.5 per cent going to hedge funds, 15.5 per cent to private equity, 14 per cent to infrastructure, and 28 per cent to other alternative strategies such as commodities and currency management.
A recent report from Russell Investments reveals that pension funds, endowments and foundations worldwide plan to increase their allocations to alternative assets over the next two years. Respondents in North American expect allocations to hedge funds to rise from 7.5 to 8.9 per cent, European investors forecast allocations to increase from 7.4 to 8.4 per cent, while Japanese institutions predict an increase from 9.3 to 9.9 per cent.
Strategic allocations to real estate are also forecast to increase in all regions over the next two years. Investors in North America anticipate their allocation will rise from 6.7 per cent in 2007 to 7.3 per cent in 2009, European respondents expect an increase in allocation from 8.9 to 9.7 per cent, Australian respondents predict a rise from 9.6 to 10.5 per cent, while Japanese investors expect an increase from 4.7 to 5.7 per cent.
Russell reports that respondents are actively exploring “new” alternative strategies such as currency overlay, tactical asset allocation, portable alpha and infrastructure.
That most new money for alternative assets is expected to come from existing investors is not surprising. Over time, investors grow comfortable with their strategies and become willing to broaden alternative allocations. However, the findings suggest that the efforts of the alternative investment industry over the last six years to inform and attract new investors, particularly small- to medium-sized pension funds, have met with less success than hoped.
After so many years reporting on alternative investment conferences in Europe, watching hedge fund managers, private equity specialists and managers of “new balanced” funds guiding audiences through impressive PowerPoint presentations, one is left wondering why the message is not eliciting a broader response.
A glance at conference delegate lists indicates that often alternative investment managers are preaching to the converted; that is, to large, well-resourced pension schemes such as the UK’s Universities Superannuation Scheme (USS), ABP in the Netherlands, or the big public employee retirement funds in the US.
It is a similar story in the area of sustainable investing. An article on cleantech investing in this issue reveals that those pension funds that have embraced the practice to date tend to be the same big, high-profile investors that have
led the way in alternative investing – names such as CalPERS and CalSTRS in the US, ABP and PGGM in the Netherlands and the USS in the UK. While this is to be expected in what
is still regarded as an emerging investment opportunity for pension funds, it will be interesting to see how the sustainable investment landscape is populated in five years’ time. Will managers of cleantech and environmental funds also find themselves preaching to the converted while scanning industry surveys for signs of positive future interest in their strategies?
Principled investments
Sustainable investing is not just about targeting technologies and products that help to combat climate change. Many of the world’s largest pension funds, as well as over 80 asset managers and a number of service providers, have signed up to the UN’s Principles for Responsible Investment. By doing so, they have undertaken to incorporate environmental, social and governance (ESG) issues into investment analysis and decision-making processes.
But according to research by consultants, Hymans Robertson, a majority of asset managers surveyed undertake an “extremely limited” amount of shareholder activism. Others prefer not to engage at all with the companies they invest in, and when they encounter poor governance they would sooner sell their shares than seek improvements.
Interestingly, 50 per cent of managers surveyed pursue ESG improvements for their own sake, as long as this does not conflict with their clients’ financial interests. Given that financial considerations are paramount, one wonders whether any commitment to address ESG issues is fatally compromised.
Henry Smith, editor
henry.smith@ft.com
