EUROPE - With the exception of Japan, European institutional investors plough more into hedge funds and alternatives than any other global market.
New research from Greenwich Associates found the proportion of European institutions investing in hedge funds grew from 26% in 2005 to 35% in 2006, with a further 10% stating their plans to begin investing in hedge funds in coming months.
"Our research suggests that a large proportion of Continental pension funds, banks, insurance companies and other institutional investors are taking significant steps away from the somewhat tradition-bound investment practices that characterised the industry for the previous 50 years," said Greenwich consultant Markus Ohlig.
Despite this, Greenwich said allocations have failed to keep pace with optimistic expectations. Allocations to private equity and hedge funds remained 2% of total assets from 2004 to 2005, while real estate allocations slipped from 6% to 5%.
"Although allocations haven't budged, European institutions remain bullish on alternatives - at least in theory," said Greenwich consultant Tobias Miarka. "In private equity and hedge funds, 41% of Continental Europe's institutions expect their allocations to increase by 2009, while only 1% expect them to decline."
Meanwhile, the diversification of institutional portfolios into new strategies has contributed to a hiring boom for external investment managers in Europe.
According to Greenwich, more than a third of institutional assets in Continental Europe are externally managed, with almost half of all institutions hiring a new external manager in the past year.
Over a 12 month period, institutions increased the share of their total outsourced assets under management to 34% from 31%.
"Although that increase might seem negligible in percentage terms, it actually represents a shift of some e75bn," said consultant Chris McNickle.
In this week's Pensions Buzz, we want to know if you believe there is ever a case for combining retirement savings products with other savings products, and if the PPF levy for sponsorless schemes is appropriate for DB consolidators.
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