Institutional investors in the UK have not been deterred from alternative asset classes, they are currently allocating 28% of portfolios to the sector with an average allocation of 8.2% to hedge funds.
According to a survey conducted by J.P. Morgan Asset Management, institutions in the UK have increased their allocation to alternatives to 28% from 21% three years earlier. The firm did however note that occupational and public plans have average weightings of 20% and 21% respectively, whereas respondents in the ‘other’ segment have a much higher exposure of 39% on average. The high weighting to alternatives among the ‘other’ plans possibly reflects the responses from several financial service companies and endowments within this segment.
J.P Morgan AM said the trend towards alternatives is expected to continue with respondents indicating they expect their allocation to alternatives to rise to 31% over the next two to three years, at the expense of equities.
Interestingly, hedge funds were found to account for the highest alternative weightings for UK pension scheme portfolios, with an average allocation of 8.2% of a total portfolio, a rise from 6.1% in 2007. Investors also confirmed they expect to increase this allocation to an average of 9.2% over the next two to three years.
Not only is the exposure to hedge funds likely to increase, so is the proportion of hedge fund investors. J.P. Morgan AM found that the percentage of UK pension schemes with exposure to hedge funds has grown significantly, with 45% of investors surveyed currently investing or looking to invest in hedge funds, up from 23% in 2007. The survey found that more than a quarter of these hedge fund investors made their first hedge fund investment less than three years ago.
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