| UK investors continued to increase their allocation to alternatives in 2004 |
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| 06/03/2005 | |
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Investors are rather prone to look at the decline in stock markets as a good reason to funnel more money into alternative strategies, according to JPMorgan's 2004 alternative investments survey. But property and commodities still lead the way while hedge funds are poised to become a standard feature of UK institutional portfolios. Property, one of the best performing asset class along with commodities in 2004, is by far the most popular alternative asset class, with 65% of respondents including it in their portfolio. This was followed by a third of the respondents currently allocating funds to private equity. Even with the media buzz surrounding hedge funds, current levels of investment in those alternative strategies remains low with less than a third of the respondents including it in their portfolio. Pension funds with hedge fund holdings had on average 5.5% of their portfolio in those strategies, according to the results of the survey. The most striking observation is the 40% proportion of pension funds that are seriously pondering an investment in hedge funds. For Peter Ball, Head of UK institutional business at JPMorgan Fleming Asset Management, the prospects are rather good for alternatives as they fulfill a function that is becoming essential in all pension portfolios. "The majority surveyed stated that returns had either met or exceeded expectations for all asset classes, which is a strong endorsement of non-traditional assets, especially during a difficult time for stock markets. As pension plans look to build more optimal portfolios, further inflows into these asset classes can be expected in the future", he said. And now The increased interest of UK pension funds for alternatives, and especially hedge funds, has also helped the European hedge fund industry to set a new record of its assets under management, increasing them by 50% in 2004. According to EuroHedge, a trade journal, the assets managed by European hedge funds now amount to $256bn, a $82bn increase on 2003. It now remains to be seen whether investors will be ready to take on themselves one more years of weak hedge fund returns. The Hennesse Hedge Fund Index (HHFI) was down 0.14% in January. But contrarily to what happened in 2004, the index this time beat the S&P 500, which gave up 2.44%. "Despite losses in the equity market, long/short equity managers were still able to generate alpha. Approximately 77% of long/short equity managers outperformed the S&P 500," commented Charles Gradante, managing principal of Hennessee Group LLC. Julien Laplante |
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