Data analysis: Fixed income attracted the most money from European investors last year, but alternatives won on future allocations as schemes look to derisk and diversify portfolios.
Inflows into fixed income peaked during the third quarter of 2013 with £45.8bn invested, compared with £4.8bn and £10.3bn in equities and alternatives respectively, according to Financial Times Service MandateWire's annual round-up (see graph).
But the investors interviewed expressed greater interest and conducted more searches for opportunities to diversify their assets into alternatives.
Appetite peaked at the close of the year with 64 expressions of interest and searches, compared with 46 and 33 for fixed income and equities respectively.
“[For] those schemes that are looking to [invest in] something because equities have had such a good run recently, there [are] two options – derisk or diversify into other growth assets,” said Mark Nicoll, partner at consultancy LCP.
Hedge funds have piqued the interest of schemes looking to diversify their growth portfolio since their performance is not correlated to equities, said Robert McElvanney, senior investment consultant at Aon Hewitt.
“It’s getting the low-risk, well risk-managed strategies and getting an appropriate range of strategies that complement each other,” said McElvanney.
It may also be a good time for schemes to invest further in emerging markets through a combination of debt and equities.
“Now’s a good time if you are underweight to start bringing it back up to the benchmark weight,” said Nicoll.
Private equity can be a good investment for larger schemes, said Nicola Ralston, director at PiRho Investment Consulting.
“If you’re large enough and you have got the ability to really do your research and work out who the best managers are, there’s quite a lot of evidence that it’s possible you can put money into the really top private equity funds that have been quite rewarding,” said Ralston.
However, it is not the best idea to invest in the asset class if you cannot gain access to the best managers, she added
All seven mandates issued for infrastructure managers were by UK investors last year, according to the research.
Schemes have been paying increased attention to infrastructure investments, however a lot of work is required to do so successfully, experts agreed.
Schemes can gain an illiquidity premium through investing in the long-term asset class.
“But a big thing we don’t particularly like is the private equity structure of them,” said Nicoll.
It is preferable for some investors to enter the asset class via listed equities, such as a road-building company, in order to gain greater flexibility, he added.
