Survey Shows Strong Preference For Alternative Investments During 2003

by Phillip Morton, Investors Offshore.com

14 July 2004

Almost $90 billion in new money poured in funds of hedge fund and property funds during 2003 as investors sought alternative vehicles to equities in the wake of the 2002-2003 bear market, a recently published survey has revealed.

The survey, known as the ‘Alternative 99 ranking’, is compiled by investment consultants Watson Wyatt in partnership with Global Investor magazine and brings together the world’s 99 largest alternative players in funds of hedge funds, private equity funds of funds, property and commodities.

According to the ranking, funds of hedge funds, which invest across a basket of hedge funds and strategies to spread risk, saw assets rise by over $41 billion in the year to December 2003, with the greatest inflow of new funds originating from institutions such as central banks, supranationals or governments.

The next largest source was from high-net-worth individuals from Europe and North America, accounting for 21% and 22% respectively.

A further $47 billion was placed into property funds worldwide in 2003, up 13% on the previous year. Growth mainly came from pension funds, particularly in Europe, where property accounted for 65% of new money, whilst North American and Asian pension funds accounted for 58% and 20% of growth respectively.

“The message of increasing diversity in pension funds assets to both reduce risk and increase returns is definitely getting through,” observed Nick Watts, European head of investment consulting at Watson Wyatt.

“Increasing focus on risk in the pension fund and the source of that risk combined with the need to reduce deficits through increased returns have accelerated the trend towards investment in alternatives,” added Mr Watts.

Meanwhile, Maha Khan Phillips, editor of Global Investor Alternatives, added: “The ranking shows just how far traditional players have gone to stake a claim in the alternatives space.”

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