EUROPE - European pension funds increased their interest in alternative investment strategies such as fund of hedge funds (FoHFs) and global tactical asset allocation (GTAA) in 2007, according to a study conducted by consulting firm Mercer.
Andy Barber, global and European head of research at Mercer, told IPE hedge funds of funds was one area in particular which had seen an increased number of manager searches in 2007, along with global ‘macro' or GTAA activity.
Globally, of the 762 manager searches conducted last year, real estate was especially popular in the alternatives markets as there 62 searches in this sector - up by 12 searches on 2006 - amounting to $1.8bn (€900m) although global equity is still the most popular product category among its clients, accounting for over $19.5bn in asset placed, according to the Mercer Manager Search Trends report.
That said, he noted "there is increasing interest in single strategy" hedge funds among European pension fund investors, as well as focus on active currency and multi-strategy offerings, such as absolute returns and market-neutral or cash plus, strategies.
"The UK is probably more interested in GTAA, while Germany, Switzerland and the UK are doing more work on alternatives," said Barber.
Overall, at least 20% more searches were done on the European continent than in the previous year while UK pension funds placed less capital in general, declining from $36.9bn in 2006 to $29.2bn in 2007.
That said, country-by-country distribution changed as the number of searches conducted by Mercer in Ireland, the Netherlands and France declined compared with an increase in searches by Swiss, German and Spanish pension funds.
Moreover, while pension funds in these countries are doing more searches, they are also have to address a knowledge gap about the processes of investing under different jurisdictions, suggested Barber.
"Where [pension funds] are using smaller firm which are not familiar to them, it does perhaps require more back office research. They are having to deal with investment manager agreements, for example, in Cayman Islands registered entities," he said.
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