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Alternatives back in favour with institutional investors
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Global institutional investors including super funds, endowments, foundations and insurance providers expect to increase their alternative investments exposure from 14 to 19 per cent over the next two to three years, according to Russell Investments data.
Real estate, private equity and hedge funds remain the preferred alternative types, although commodities and infrastructure are expected to make meaningful gains from their current low allocations, according to the Russell Investments 2010 Global Survey on Alternative Investing.
The survey of 119 institutional investors in North America, Europe, Japan and Australia revealed Australian respondents favoured infrastructure, commodities and real estate more than their global counterparts.
“Although most global regions are increasing allocations to infrastructure and commodities they are coming from a very low base of between 0.3 per cent and 0.7 per cent respectively,” said Nicole Connolly, director of alternative investments, Asia Pacific region.
“Australian investors, on the other hand, have had higher allocations to these sectors for some time, providing inflation protection and portfolio diversification,” she said.
While real estate allocations in the northern hemisphere had dropped below 5 per cent from 7-10 per cent, Australian allocations remained relatively high at 8.7 per cent having dropped from 11.5 per cent in 2003 — partly due to local real estate performing better during the financial crisis.
“Alternatives have proved their role as portfolio diversifiers and risk-mitigators during volatile markets, and we expect continued demand from institutional investors even if the global recovery were to falter,” Connolly said.
Ongoing demand for alternatives is expected to drive increased use of research consultants with a focus on project based and asset allocation research, and due diligence on managers and investment funds.
AUTHOR
Mike Taylor
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