The survey of 151 of Europe’s largest institutional investors with combined assets of E1,500bn found nearly all respondents invested in long-only equities and fixed income. When it came to alternatives, there was more variety, with 40 per cent investing in hedge funds, 80 per cent in real estate, 60 per cent in private equity and less than 10 per cent in commodities.
Tactical asset allocation was found to be quite popular, with 50 per cent using the approach, while 30 per cent used currency management. But by 2006 over 60 per cent of institutions are expected to be active in all six of these strategies, according to Mr Ericsson. He said the pension funds and insurance companies surveyed had an average of 2 per cent invested in hedge funds, but he expected this to increase in the coming years. “Only a few are currently close to the allocation they actually want.”
While Swiss players were found to have the largest slices of their portfolios devoted to hedge funds, UK investors have the smallest. Mr Ericsson explained: “The UK has traditionally been equity-focused and we are seeing a move there towards decreasing the over-reliance on equities and increasing the amounts invested in hedge funds and currency management.”
Mr Ericsson, a currency manager, claimed there was “a consensus among investors that specialist currency managers always seem to add value and that can’t be said for equity managers”. Hedge funds offered a similar attraction, he said. So much so that while 17 per cent of UK institutions invest in hedge funds, 45 per cent would do so in two years.
This will be music to the ears of hedge fund managers, who have suffered a slowdown in inflows in the third quarter of 2004, according to Tremont Tass Research. The sector attracted $25bn (e19bn) in Q3, which compares unfavourably with the first and second quarters, which saw $43bn and $38bn of flows respectively. Robert Schulman, co-chief executive of Tremont Tass affiliate Tremont Capital, said: “The Q3 flows are to be expected as the global pool of assets under management by hedge funds gets larger.”
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