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Nordic institutions move to alternatives - survey

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NORDIC – Nordic institutional investors are continuing to move into alternative assets, according to research conducted by Prospera Research.

Prospera was commissioned by the Alternative Investment Managers’ Association and Informed Portfolio Management to survey the senior officials of the region’s largest institutional investors. Sixty percent of the institutions interviewed have now allocated capital to hedge funds and/or private equity.

The survey revealed differing levels of asset allocations depending on size and location of institutional investor. While large institutions had an average of one percent allocated to hedge funds and/or private equity, smaller investors had a four percent average allocation. Finnish investors allocated six percent to the asset classes, followed by Sweden with four percent, Denmark with two percent and Norway with one percent.

According to the research, while more institutions are currently invested in private equity than hedge funds, the interest in hedge funds is expected to increase. 38% of institutions are currently invested in hedge funds and as many as 51% have plans to procure new hedge fund managers within two years.

By the end of 2005, 61% of Nordic investors are expected to be invested in hedge funds. IPM says the survey reveals that the greatest hedge fund activity in the next two years will be for fund-of-funds investments by Swedish institutions.

Non-domestic hedge funds are also expected to see demand increase. At present, close to 40% of hedge fund investments have been in domestic funds.

The survey shows an expected increase in overlay strategies. These are strategies that have traditionally been run as overlays or as part of the overall portfolio management.

Says Lars Ericsson, partner at IPM Portfolio Management: “Recent procurements have seen the same strategies used as pure sources of value added (pure alpha strategies. This makes it more evident that tactical asset allocation and currency overlay could be viewed as complementary sources of alpha and has helped to increase the awareness of the strategies. It also helps that investment consultants have recently been quite supportive of both TAA and active currency management.”

The survey was conducted between June and September 2003, during which time, Prospera interviewed the CEO, CIO or other senior investment officials at 84 pension funds, life insurance companies, and foundations/trusts with total assets of more than 450 billion euros.

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