Institutional investors around the globe predict a major increase in allocations to hedge funds, Institutional Investor reports.
North America expects the largest increase of 20% — from 7.5% to 8.9% of total assets, according to Russell Investments’ eight global report on alternative investments. Japan will have the greatest allocation, from 9.3% to 9.9%. European respondents expect to increase hedge fund investments from 7.4% to 8.4%, but Australians expect to remain at 4.1%.
“Describing the use of private equity, hedge funds and real estate as ‘alternative’ is increasingly a misnomer in today’s sophisticated investment environment,” says John Bailie, managing director of alternative investments at Russell.
The report also revealed that strategic allocations to private equity rose in Europe, Australia and Japan but dipped in North America, though all regions expect increases through 2009. The mean private equity expected returns globally ranged from 8% to 13%, with those in North America and Europe expressing the greatest optimism.
Additionally, the report says that the percentage of Japanese institutions using hedge funds has gone from 59% in 2005 to 71% this year, even though expected average returns in that country is 4.6%, about half of the 9% elsewhere. Leveraged buyouts remain the most popular PE strategy globally, with 71% of PE assets in North America committed to them, up from 57% in 2005. Other regions also reported healthy growth: LBOs accounted for 41% of private equity assets in Australia and 63% in Japan, up from 26% and 47%, respectively.