UK Institutions Allot 28% of Portfolios to Alts

Alternatives are rising in popularity among scheme investors, according to new research by J.P. Morgan Asset Management.

(September 27, 2010) — A new survey reveals institutional investors in the UK are allocating nearly a third of their portfolios to alternative assets, up from 21% three years earlier.

The recent survey by JP Morgan Asset Management (JPMAM) reveals the trend toward alternatives will likely continue, with most respondents expecting to increase their allocations to alternatives – at the expense of equities – to 31% over the next two to three years.

Hedge funds had the highest alternative weightings, with an average allocation of 8.2% of a total portfolio, representing an increase from 6.1% in 2007. The analysis revealed this could rise to an average of 9.2% over the next two to three years. JPMAM said the number of schemes investing in hedge funds also increased notably — 45% of investors surveyed already had or were looking to invest in hedge funds, up from 23% in 2007.

Hedge funds were also deemed the most attractive investment for the longer term, along with private equity and real estate over the next two to three years. The report indicated that while real estate still enjoys the highest market penetration, the percentage of respondents investing or planning to invest in the asset class has fallen since 2007.

From a regional perspective, UK pension schemes expect the strongest returns in alternative assets to come from emerging Asia. The region is particularly favored by private equity investors, the study noted, with 18% of respondents saying they plan to buy in this area over the next 12 months.

“It is clear investors are becoming more comfortable investing in alternatives as their understanding of such asset classes grows and, given the turbulent market conditions over recent years, they appreciate the increased level of diversification offered by alternatives,” J.P. Morgan Asset Management head of UK institutional Peter Ball said in a statement. “We continue to believe that hedge funds can offer the right investment solutions but it is key that investors are at ease with what they are investing in, which appears to be the case from the survey results.”

The research consisted of feedback from 25 completed surveys from public and private UK institutional investors.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742