Institutions favour alternative investments

Institutional investors remain committed to alternative investments in spite of volatile market conditions, according to Goldman Sachs and Russell’s sixth global report on alternative investing by institutions.

Despite poor returns in the past few years commitments to private equity among North American respondents totalled $179bn. Forty-three per cent of European respondents currently invest in private equity committing $16bn. And institutions active in the asset class in all regions predicted their allocations to private equity would rise over the next few years.

Hal Strong, president and managing director of alternative investments at Russell, said: “Among the largest institutions, despite tumultuous markets, private equity and real estate allocations are surprisingly stable.”

The survey target list includes the largest pension funds, foundations and endowments (generally assets of $3bn or more) and the results are based on the detailed information provided by 325 organizations in North America, Europe, Australia and Japan.

Further findings revealed that fund-of-funds were an increasingly popular investment vehicle for private equity and hedge fund allocations in all regions. In North America for example fund-of-funds comprise a steadily growing portion of private equity commitments, increasing from 2% in 1997 to 11% in this year’s survey.

The survey also reveals that investors have achieved solid returns for their alternative investments and their return expectations going forward remain optimistic. Median annualized returns forecasts for North America among respondents was 12% for private equity and in Europe respondents expect 11%.

Nigel O’Sullivan, managing director at Goldman Sachs International’s Pension & Insurance Strategy, said: “It is clear from the 2003 survey results that alternative investments are an increasingly important part of institutional investment portfolios in markets around the world. With each survey we discover institutions taking even greater advantage of the benefits provided by these investments.”