IIs Predict Big HF Jump By 2009

Institutional investors around the globe are predicting a major increase in allocations to hedge funds—everywhere, it seems, except in Australia. According to Russell Investments’ eighth global report on alternative investments, IIs in North America expect the largest boost – a whopping 20% increase – from 7.5% to 8.9% of total assets, while Japan says it will boast the greatest allocation, 9.9%, up from the current 9.3%. European respondents say they will likely pump up their HF investments from 7.4% to 8.4%, while Australians intend to keep it as is, at 4.1%. The survey indicates that alternatives are increasingly becoming mainstream. “Describing the use of private equity, hedge funds and real estate as ‘alternative’ is increasingly a misnomer in today’s sophisticated investment environment,” said John Bailie, managing director of alternative investments at Russell. In other findings:

• Strategic allocations to PE rose in Europe, Australia and Japan but dipped in North America, though all regions expect increases through 2009.
• The mean PE expected returns globally ranged from 8% to 13%,  with those in North America and Europe expressing the greatest optimism.
• 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 PE Assets in Australia and 63% in Japan, up from 26% and 47%, respectively.