Nordic LPs to close alternatives gap

A report into Nordic investment trends has found that Nordic pension funds, life insurers and foundations are all looking to increase their allocation to hedge funds rather than private equity.

A survey of large Nordic institutional investors has found that investment in alternative assets is set to grow over the next two years, both in terms of the number of firms investing and the size of allocations.


The Nordic Alternative Investments Survey by Prospera Research found that 60 per cent of large Nordic pension funds, life insurers, and foundations are currently invested in hedge funds and/or private equity. The survey was conducted on behalf of IPM Informed Portfolio Management and AIMA, the Alternative Investment Management Association.


The average allocation to hedge funds and private equity across the region is two per cent of the overall portfolios of the 93 institutions surveyed.  These averages vary across the region: Finland’s allocation averages six per cent, ahead of Sweden (four per cent), Denmark (two per cent) and Norway (one per cent).


The survey also found that hedge funds were considered to be a preferable form of investment to private equity funds moving forward, with more than 50 per cent of institutions planning to hire new managers, compared with a third looking to hire private equity managers.


“There is currently a bigger exposure to private equity among institutions, with around 30 per cent committed to the asset class,” said Lars Ericsson, partner at IPM Informed Portfolio Management. “However, the gap between private equity and hedge fund allocations is narrowing.”


Hedge fund investments will increasingly be made through funds of hedge funds and non-domestic funds, the report found.  Just under 40 per cent of existing hedge fund investments have been made in domestic funds.


“In response to moderate equity return expectations, investors look to add more active investment strategies to their portfolios. More than half of investors plan to procure new hedge fund managers and a third plan to hire private equity managers within the next two years,” said Lars Ericsson, partner at IPM Informed Portfolio Management.


The survey sought the opinions of some of the largest institutional investors in the region, including the Swedish AP pension funds, Norges Bank Investment Management, Sampo and Nordea Life.


In 2002, only Iceland and Finland increased their investment to European private equity, according to data published by the European Private Equity and Venture Capital Association (EVCA). In total, E27.5bn funds were raised in 2002 by European private equity firms, compared to E40bn in 2001.