AUSTRALIA - Slumping returns on equity and bond investments have sent Australian pension funds looking beyond the conventional, according to a recent study by consultants Greenwich Associates.
“With hedge funds and private equity, superannuation funds are reaching for greater alpha, but also running greater risk,” noted Sandhya Chand, a Sydney-based consultant with Greenwich Associates.
A fifth of all funds say they expect to increase their investment in private equity/development capital and in hedge funds by 2004, while no funds anticipate a decrease.
While Chand said the current level of investment in these categories is minimal, the zeal for alternatives is consistent with a trend Greenwich Associates has been tracking in pension markets around the world.
Also hearty is the appetite for international equity, though most overseas indices have under-performed relative to the All Ordinaries over the last three years. Less enthusiasm is seen for direct property and for cash.
“While the trend continues to be towards greater international equities exposure, the rate of outflow from domestic equities is expected to decrease, and the rate of inflow into international equities is also expected to decrease,” said Greenwich consultant Peter Lee.
Different funds report paying very different levels of fees to outside managers, with medians for core equity and fixed income classes at wide-ranging levels.
Funds report paying an average fee of 60 basis points for international equity managers, and 22 basis points for domestic fixed income managers.
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