| Institutional investors still looking for more alternative assets |
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| 18/12/2005 | |
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Invesco's lastest pan-European study of institutional investment trends confirms once more that alternative assets in general are taking an ever increasing share of the average asset allocation. The European Institutional Asset Management Survey (EIAMS) shows that alternative investments now make up an average of 12% of investment assets, up from 8% in 2003. That is not to say that all European investors are equal or that they have all been massively investing in hedge funds. As the survey points out, due to various regulations and traditions, institutional asset allocations vary widely across the board. German investors, at 0.9%, invest a marginal part of their allocation to hedge funds. One of the few countries where hedge funds have acted like a real alternative magnet in the last year is France, where hedge fund allocations now average 2,7%, in part due to its recently implemented regulation that have opened up those vehicles to local institutional investors.  Source: EIAMS survey Alternative The concept of "alternative investments" as defined by this study is also quite large, and somewhat misleading. While one would be quick to assume that investments in hedge funds have been a driving force behind this trend, they account for only 1.2% of the average European alternative allocation. It is rather structured products, options, futures as well as ETFs – which Invesco puts in an "alternative of alternatives" category – that have driven alternative growth. Index-based structured products are now used by 13% of the institutions, while European Equity ETFs show up in the portfolios of 12% of investors. It is predicted that in the near future the number using these two vehicles will grow by half as much again, to 18%. The survey also found that index-based products are somewhat less used in Germany. Delegation The general growth of alternative investments , which requires more skills than traditional placements, has been paralleled by an increase in the delegation of their management. Not all investors delegate at the same rate: pension funds delegate proportionately six times more of their assets to external managers than do insurance companies. Performance remains a priority issue for the selection of external managers. According to Invesco, institutions addressing their own internal needs, such as the construction of a portfolio that maximises returns in a risk-controlled manner, do not focus primarily on alpha as they do for external managers. That has changed over the last couple of years. While performance is now the most important criteria when selecting an external manager, it was only the second most important in the previous two years. The survey's analysts also note that poor performance is the factor that most often prompts an institution to change an external manager. "However, when they consider their other needs, beyond the reach of external suppliers, comparing performance becomes less important", they write. About 100 financial institutions from France, Germany, Italy, Belgium and the Netherlands with total assets under management totalling €102bn responded to Invesco's survey, conducted in the third quarter of 2005. J.L. |
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