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Europe falls behind, as alternative investments grow worldwide

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EUROPE - Institutional investment in alternative assets is set to grow by more than a third, according to a recent survey by Russell Investment.

Responses to the group's 2010 Global Survey on Alternative Investing showed institutional investors worldwide planned to increase their stakes in assets such as real estate and hedge funds by 5 percentage points by 2012.

The European market, however, proved the exception, with little growth in private equity or hedge funds expected over the next two years, Russell said.

In Europe, private equity was expected to make up just 3.7% of all assets, far from the nearly 7% share predicted for North America, while hedge funds were not expected to return to pre-crisis levels until after 2012.

Russell's survey also found that market volatility over the past few years has placed renewed emphasis on risk management and reporting, with more than 80% of respondents makin changes to their overall governance and risk management strategies.

With respect to alternatives, more than a third said management and boards would be further educated on the asset classes.

Julia Cormier, director of alternative investments at Russell, said: "Many institutional investors have adopted risk management systems that provide risk attribution by source.

"Still more have increased the frequency and depth of risk reporting to investment committees and management."

Infrastructure investments were also expected to grow slightly in popularity, up to 1.4% from 0.3%.

Russell said the low level was due to uncertainty over the progress of government-supported projects in light of budget constraints.

In contrast to the survey results, Hewitt Associates today said it has seen growing demand for hedge funds from its clients and that the funds should no longer be viewed as alternative assets.

Guy Saintfiet, senior hedge fund researcher at Hewitt, said a step toward the asset class was a natural progression from unconstrained, active equity management.

"Hedge funds have an extra degree of freedom to use shorts, which can add tremendous value, especially in volatile and bear markets," he added.
 

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