Industry funds would continue to lead a charge into alternative investments, boosting their asset allocation to about 10 per cent in 2012, Quay Partners managing director Sam Armstrong predicted at CMSF.
He noted that prior to 1992, industry funds had virtually nothing invested in alternative investments like private equity or hedge funds, but by 2002, 70 per cent had taken the leap.
While they currently had around five per cent of their asset allocation in alternative investments, Armstrong believed that this figure would rise to 10 per cent in 2012 and to 15 per cent in 2022.
He added that public sector funds would grow their allocation to around 10 per cent by 2022, but DIY funds would lag slightly behind, boosting their exposure to nearly five per cent over the next 20 years. Corporate funds, however, would withdraw from this investment class and master trusts would continue to avoid it.
Armstrong said the growing appetite for alternative investments among industry and public sector funds would be spurred on by declining absolute returns, falling alpha in conventional asset classes, improved liquidity from SG inflows and the growing expertise of investors in making alternative investments.
Armstrong predicted that by 2012, the hedge fund industry would have also addressed many investor concerns, such as transparency. There would also be better risk management and governance frameworks, track records would provide more insight into investment attributes, and fees and incentives would continue to be more aligned with investors’ interests.
He added that by 2012, the “model” investment portfolio might have an allocation of two per cent to Australian private equity, five per cent to international private equity, seven per cent to hedge funds, 0.5 per cent to timber or farming ventures and 0.5 per cent to real estate, with alternative investments together making up 15 per cent of the total portfolio.
