Alternative investments looking more attractive

Internationally investors are dedicating larger slices of their total investment portfolio to private equity, hedge funds and real estate, than previously and the trend is likely to happen in New Zealand too.

Tuesday, December 11th 2007, 7:47AM

A report from Russell Investments shows that as a percentage of total fund assets, institutional investors in North America, Europe, Japan and Australia expect increases in all of these alternative investments, with the one exception of Australian institutional investors keeping their mean strategic asset allocation to hedge funds steady.

Ed Schuck, Managing Director of Russell Investment Group in New Zealand, said the uptake of alternative assets by institutional investors in New Zealand is gathering speed and given the current level of interest may catch up to other countries soon.

However, allocations for now are still considerably less and are weighted toward real estate through listed global real estate securities.

"Commodities and hedge funds are also gaining acceptance among the local institutional investor base," Schuck says. "Commodities in particular have attracted interest because they have the advantage of being simple to implement."

Schuck said factors that have affected the uptake of alternate assets in New Zealand include:

Investor comfort, familiarity and general understanding of alternative investments such as hedge funds, infrastructure, timber, private equity and unlisted property
A limited range of options for implementing allocations to these kind of investments
The relative cost of investing in some alternative investments.

Schuck warned while all investors aim to use alternatives to enhance returns, those investments require thorough diversification and an extended timeframe.

"Investors such as the New Zealand Superannuation Fund have become a model for alternative asset adoption largely because of the fund's size and very long term timeframe for investment," he says.

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Alternative investments looking more attractive

Internationally investors are dedicating larger slices of their total investment portfolio to private equity, hedge funds and real estate, than previously and the trend is likely to happen in New Zealand too.

Tuesday, December 11th 2007, 7:47AM

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