EUROPE - JPMorgan Fleming Asset Management is calling for greater education about alternative investments following survey results which suggest that many European institutions still view the asset class as too risky.
According to the JPMorgan Fleming European Alternative Investment Strategies Survey 2003, investors are still anxious about using alternative strategies, despite acknowledging diversification benefits and enhanced returns.
So-called 'perceived risk' associated with asset classes such as hedge funds and private equity prevents many from investing, the survey explained.
Peter Schwicht, head of European institutional business, JPMorgan Fleming, said: An education process is clearly required to demonstrate that specific alternative investment strategies can actually help to reduce overall downside risk in a portfolio.
“Given that returns from mainstream investments are likely to remain subdued for some time, there is now an opportunity for fund managers to shape the attitudes of institutional investors across Europe in alternative asset classes.
JPMorgan interviewed a total of 341 institutions in the UK and continental Europe - from Germany, the Nordics, the Netherlands, Switzerland, Italy and France - including some of the largest pension fund managers in each market. Respondents accounted for over e1trn in institutional assets.
The survey showed that the overall level of investment in private equity and hedge funds is currently low at just 3.3% and 2.5% respectively. By contrast, the level of investment in real estate - increasingly viewed as a core class - averaged almost 11%.
As well as perceived risk, a “lack of understanding” and “advice from consultants” also emerged as key reasons for not investing in alternatives. More than one in three non-investors also cited a “lack of liquidity” as a reason for not holding private equity.
However, those investors currently using alternatives were keen to increase their commitments. And the percentage of investors who thought that returns from alternative strategies had met or exceeded expectations ranged from 66% for private equity to 79% for hedge funds.
Encouragingly, what we have found is that, against the backdrop of a three-year bear market in public stock markets, many institutions have been very satisfied with returns from alternative investment strategies,” added Schwicht.
“However, asset allocations to asset classes like private equity and hedge funds is undeniably low and changing the 'perception of risk' is now a key challenge for the fund management industry.”
Other key findings from the JPMorgan Fleming European Alternative Investment Strategies Survey 2003 can be found at www.jpmorganfleming.com.
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