European pension funds continued to increase their allocations to alternative assets such as hedge funds and commodities last year, according to a report by Mercer Investment Consulting.The study showed German, Dutch and British schemes all increased allocations to non-traditional asset classes.
The findings, based on responses from 1,000 funds with combined assets of â?¬400bn, indicate pension schemes stood by hedge funds even as the asset class suffered its worst year on record.
Hedge funds lost more than 17 per cent in 2008, according to the HEDGEweb Index, and suffered heavy outflows.
In Germany, schemes increased allocations to alternative assets to 11 per cent from 10 per cent last year, Dutch schemes raised their weightings to 11 per cent from 9 poer cent, and United Kingdom schemes to 6 per cent from 4 per cent.
UK schemes favor hedge funds, global tactical asset allocation, and active currency as diversification strategies and since the survey was completed over 50% more UK schemes have allocated to these asset classes, the report said.
Nine percent of British schemes have allocated to funds of hedge funds. Only 2% of UK schemes invest directly in hedge funds but the average allocation among those is 9%.
In Europe, 14% of pension schemes have allocated to funds of hedge funds, 12% to commodities, and 10% to high yield bonds. Of the 5% investing in single strategy hedge funds the average allocation is 12%.
More than two-thirds of schemes surveyed have been prompted to conduct investment reviews due to the financial crisis, with almost 70% reviewing counterparty risk and over half looking at their cash management programs.
