By Jon Gripshover
"Alternative alternatives" assets are growing faster than other asset classes among European institutional investors, a new report shows.
Among these investments, structured products, options and futures, and exchange-traded funds are attracting the most investors, with 34%, 23% and 26% of institutions, respectively, projected to use them this year, according to the 2005 European Institutional Asset Management Survey, sponsored by INVESCO and Financial Research Corp. At the end of 2004, 56% of the survey respondents reported using one or more of these strategies.
The survey defines "alternative alternatives" as any of the new or complex investment strategies that are difficult to place in traditional categories.
While these strategies are being used is not surprising, the growth rate is higher than expected, said Yves Van Langenhove, head-institutional, Western Europe, for INVESCO Europe, Frankfurt.
"We know that European institutional investors are using more and more the instruments we called ‘alternative alternatives' but we were quite surprised by the future growth of, for example, ETFs," Mr. Langenhove said in an interview. Among survey respondents, 17% reported using ETFs at year-end 2004, while 26% said they will use them going forward, a growth of 50%, he added.
With the increase in the "new" alternatives came a decline overall in the expected use of hedge funds in Europe, the report said. For 2005, 11% of respondents expected to increase their allocations to hedge funds. This compares with 32% in 2004 and 38% in 2003, according to the survey.
The trends are due to a confluence of several factors, Mr. Langenhove said. The higher level of sophistication among investors has a lot to do with it, as does the pressure they feel to boost returns because of low interest rates and the decrease in pension funding ratios. With institutions seeking more alpha, and ways to split alpha and beta, the more complicated strategies are getting more attention.