U.K. institutions big on alts — and expect to get bigger

U.K. institutional investors had an average 28% allocation to alternative investment strategies, up from 21% in 2007, according to a survey conducted in June and July by J.P. Morgan Asset Management (JPM).

Alternative investment by U.K. pension funds, endowments and foundations will increase to an average 31% over the next two to three years, Simon Chinnery, senior client adviser in J.P. Morgan Asset Management’s U.K. institutional client service unit, said in an interview.

Respondents said their increased use of hedge funds, private equity, commodities, infrastructure and real estate strategies will come at the expense of equities, Mr. Chinnery confirmed.

“We do this survey every three years, and this year we wanted to gauge the extent to which U.K.-based institutional investors were diversifying their portfolios after the problems of 2007. There weren’t any massive surprises in the responses,” Mr. Chinnery said, “but after a pause in 2008, it’s clear that U.K. institutions are steadily moving more of their assets into alternative investments.”

Mr. Chinnery confirmed that investors surveyed have positive expectations about the returns of all major alternative asset classes for the next year.

Among alternatives investment approaches, hedge funds are the most popular with U.K. institutional investors, with an average 8.2% allocation, up from 6.1% in the 2007 survey. Respondents said they expect to increase their hedge fund allocation to 9.2%, on average over the next two to three years.

Also, 45% of U.K. institutional investors surveyed are already invested in or intend to invest in hedge funds, compared to 23% three years earlier.

The number of respondents whose funds already invest in real estate or intend to invest in the asset class dropped markedly to 56% this summer from 71% in 2007; also, 18% said they intend to invest in private equity within the next 12 months.