A survey of European institutions published by JPMorgan Fleming has shown that real estate and private equity remain more popular than hedge funds for those investing in alternative asset classes.
The JPMorgan Fleming European Alternative Investment Strategies Survey 2003, published last week, surveyed institutions across Europe looking at the incidence of investment in alternative asset classes.
Real estate has the highest incidence of investment with 70 per cent, followed by private equity, to which 48 per cent of European institutions had committed capital. The number of those investing in hedge funds and currency overlay (where currency exposures are managed separately from the underlying securities) was significantly lower, with only 22 per cent and 23 per cent penetration in the European institutional market respectively.
Among the reasons given for investing in alternatives, 80 per cent of those who favoured private equity said they did so on account of the potential for higher returns. Just under half (47 per cent) said they invested in private equity because of its lower correlation with other asset classes. Investors said they preferred real estate because of its low volatility (51 per cent), potential for higher returns (32 per cent) and a lower correlation with other asset classes (66 per cent).
Peter Schwicht, Head of European Institutional Business, JPMorgan Fleming, said: “The high incidence of investment in real estate is in line with our expectations since historically, institutions across Europe have favoured direct investment in real estate within their respective domestic markets and indeed on the most part, real estate is regarded as a ‘core asset class’ rather than an ‘alternative asset class’.”
“However,” Schwict continued, “our findings show a growing interest among European institutional investors in other alternative investments, most notably private equity. There is a clear desire among pension funds across Europe to tap into investments which are not correlated with quoted equities – it is up to the fund management industry to provide the investment vehicles and the education required to help institutional investors manage these alternative investment classes effectively.”
From November 2002 through to May 2003, JPMorgan Fleming contacted over 600 institutions in the UK and Continental Europe, successfully interviewing 341 of them. Collectively, this survey sample accounts for over E1trn of institutional assets. Full results of the JPMorgan Fleming European Alternative Investment Strategies Survey 2003 will be published in September 2003.