UK - Schemes are increasing their allocations to alternative investments such as private equity and hedge funds, research from Russell Investment Group and Goldman Sachs reveals.
The biannual review shows that the proportion of schemes from the UK and Europe that invest in hedge funds has risen dramatically from 15% at the end of 2001 to 21% at the start of the year.
And the number of schemes which invest in private equity increased from 55% in 2001 to 58% at the end of 2003.
Russell also found average weightings to alternative asset classes had risen – and the trend was set to continue.
At the end of 2001, the average weighting towards private equity was 3.6% of assets, which had risen to 4% by the end of 2003. For 2005, the average private equity weighting is set to be 4.5%.
Institutional investors have doubled their allocations to hedge funds, in terms of both single strategy and fund of funds products. In 2001, the average hedge fund weighting was 1.7%, which had risen to 3.6% by the end of 2003.
According to Russell forecasts, this will rise to 4.5% by the end of 2005.Goldman Sachs managing director, pension and insurance strategy group, Nigel O’Sullivan (pictured) said: “While allocations to alternative investments remain strong, many institutional investors endorsed hedge funds in the past two years with new or significantly increased allocations and commitments.
“It is clear from the 2003 survey results that alternative investments are an increasingly important part of institutional investment portfolios in markets around the world.
Russell and Goldman Sachs also found that institutional investors’ predictions for the returns generated by their alternative investments were “optimistic”.
UK and European investors expect 11% returns for private equity, 7% for hedge funds and 7% for real estate.
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.