Europe's Pension Funds Eyeing Alternative Investments

by Phillip Morton, Investors Offshore.com

29 August 2003

As the yawning gap between pension fund assets and liabilities continues to grow, research published this week by JP Morgan Fleming Asset Management shows that European financial institutions are increasingly turning to the world of hedge funds and alternative investments in a bid to plug the gap.

The recent slide in equity prices has left the pension fund industry underfunded to the tune of 2,100 billion euros says Peter Schwicht, head of European institutional business at the bank's asset management arm. Consequently, the study, which surveyed around 340 institutions managing assets worth some 1,000 million euros found a "high level of potential interest in hedge funds."

According to Mark White, head of international institutional business at the firm: "There is still a lot more talk about it than action, but we have seen people committing in the recent past," said Mark White, head of international institutional business." At present a quarter of the firms polled had allocated capital to hedge funds, though a further 37% were considering such a strategy in the future.

JP Moragan's findings have also uncovered a regional preference for hedge funds and alternative investments, with one-third of institutions in Germany and the Scandinavian countries placing money into these instruments. This compares with a relatively small 8% of UK firms which is considered the centre of the European hedge fund industry.

The increased level of interest in the hedge fund sector is consistent with the latest research from Tass which reported the strongest quarter yet in terms of net hedge fund inflows since it began monitoring the industry in 1994. By the end of the third quarter this year some US$22.3 billion had flowed into hedge funds, more than the whole of 2002, with Event Driven and Convertible Arbitrage the most favoured strategies accounting for 64% of these inflows.

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