European pension funds in alternatives

Real estate at 6-year peak, private equity, commodities, hedge funds also gain

(LONDON) Real estate investment by European pension funds last year reached a six-year peak amid renewed market confidence in alternative assets, research by global investment manager Invesco showed on Tuesday.

Private equity, hedge funds, and commodities also saw year-on-year gains as pension funds moved into investments not directly tied to mainstream financial markets, the report said.

Alternative investments made up 11.7 per cent of pension portfolio holdings last year, from 8.7 per cent a year earlier.

'The economic crisis dented confidence in alternatives, but European institutional investors seem to have embraced the sector once again,' said Simon Redman, head of product management at Invesco Real Estate.

'Institutional investors are reasserting their belief in the low correlation of alternatives to the mainstream asset classes.'

Real estate formed the bulk of alternative asset allocation, with 6.6 per cent of investors' total assets in this category, compared with 4.7 per cent in 2008, Invesco said.

The findings of Invesco's European Institutional Asset Management Survey, whose main focus is on European pension funds, point to a more positive sentiment compared with 2008.

Portfolio holdings in hedge funds overtook holdings in private equity, rising from 1.6 per cent in 2008 to 2.3 per cent last year, the report said.

Last Friday, Oakley Alternative Investment Management said that hedge funds are likely to prosper in currently volatile markets, while portfolios betting on mergers should profit from a lack of competition.

UK pension funds held the largest ratio of hedge funds compared with European counterparts at 3.6 per cent, followed by the Nordic countries at 3.2 per cent, and France with 3.0 per cent, Invesco said. Large- and medium-sized investors now both have at least a 3 per cent allocation to hedge funds, up from less than 2 per cent last year. Smaller investors have retained 2008's 1.8 per cent allocation, the report said. -- Reuters

Source: Business Times, 15 Jul 2010