Pension funds in the United Kingdom are continuing to increase their allocation to alternative investments, such as hedge funds and real estate, says Watson Wyatt.
Last year, the firm conducted 62 searches for hedge funds, with the number of fund of hedge funds mandates (27) almost tripling compared with 2006. Mandates to single-manager hedge funds accounted for more than half the searches, with global macro being the most popular, followed by long/short equity and fixed-income strategies.
“Hedge funds remain a good way to capture both manager skill and ensure diversification, however the burden on governance should be very well assessed before deciding on which strategy to choose,” says Paul Trickett, European head of investment consulting at Watson Wyatt. “While hedge funds continue to be popular, single strategies are fast gaining traction among higher governance funds and those wishing to outsource this type of selection exercise.”
During 2007, U.K. pension funds awarded about 50% more real estate mandates than the previous year and around two-and-a-half times more than in 2005. There was also a continuation in the shift away from pure U.K. real estate mandates to those including allocations overseas.
Investing in private equity also attracted substantial interest from U.K. pension funds during the past two years and the number of new mandates awarded has more than double in that time as a result.
While some pension plans still choose the fund of funds route when investing in private equity, for the first time last year the majority of clients opted for direct managers. In addition, the firm awarded nine new infrastructure mandates compared with none two years ago.
For more information about alternatives, click here to visit our special section, A Trustee’s Guide to Alternative Investments.
To comment on this story, email craig.sebastiano@rci.rogers.com.