UK institutional investors have a far greater appetite for alternative assets than their Australian counterparts, particularly for hedge funds, and all at the expense of equities, a JPMorgan Asset Management survey reveals.
Respondents to the survey, who included most of the UK’s largest institutional investors, were on average allocating 28 per cent of their portfolios to alternative assets, an increase from 21 per cent three years earlier.
JPMorgan AM’s survey found that this trend was expected to continue, with respondents indicating they expect their allocation to alternatives to rise to 31 per cent over the next two to three years, at the expense of equities.
A highlight of the findings showed that hedge funds account for the highest alternative weightings for UK pension scheme portfolios, with an average allocation of 8.2 per cent of a total portfolio, a rise from 6.1 per cent in 2007. Investors also confirmed they expect to increase this allocation to an average of 9.2 per cent over the next two to three years.
The hedge fund exposure of the average Australian institutional investor is more like 2-3 per cent, according to the local chief of global hedge fund-of-funds giant FRM, Richard Keary.
He said markets with lots of defined benefit pension schemes, such as the UK and US, were buying hedge fund-of-funds “hand over fist” because the nil return of equities over the past decade had left them with large funding gaps, which could not be closed by long-term government bonds with a risk-free return rate of virtually zero.