GREENWICH, Conn. (HedgeWorld.com)–Worldwide pension funds have begun looking to alternative investments as a refuge from the stormy stock markets and Australia is no different, according to Greenwich Associates research.
A fifth of the 166 Australian superannuation funds surveyed by Greenwich said they anticipate increasing their investments in both private equity/development capital and hedge funds by 2004.
According to the survey, Australian pension funds will likely increase their allocation to hedge funds by 21% by 2004. The survey included interviews of industry funds, corporate funds, government funds, non-superannuation schemes and master funds. The results revealed that none of the funds expected to decrease their investments in hedge funds or private equity.
Superannuation funds are reaching for greater alpha, but are also running greater risk, Sandhya Chand, Greenwich’s Sydney-based consultant, said in a statement. A decrease inflow into international equities and the perception of domestic bonds as a less effective long-term investment may be blamed on the increased interest in moving into alternative asset classes, Greenwich concluded.
When it comes to choosing actual managers an increasing number of Australian pension funds rely on investment consultants. More than 90% of fund use consultants to advise on investment policy and manager selection, a process that is legislatively driven in that country.
A new trend of implemented consulting is taking hold among Australian pension plans too, with more than half of industry funds considering the practice in the last 12 months. Implemented consulting is the hiring of a consultant to take full control and accountability for investment manager selection, including responsibility for timing and for transferring of plan money from one investment manager to another.
Greenwich found that implemented consulting was most attractive to medium-sized funds, with A$250 million to A$500 million in assets. The practice was less appealing to smaller funds with assets between A$100 million to A$250 million. A number of consultants are leading providers in Australia including MLC Corporate Solutions, Frank Russell, Mercer, Intech and Towers Perrin.
Greenwich recently released the results of its survey: European and Canadian institutional investor’s plans to move into hedge funds.