STOCKHOLM, Sweden (HedgeWorld.com)–Hedge fund assets among Nordic institutional investors are expected to grow as more Nordic pension funds, life insurance companies, foundations and trusts plan first-time hedge fund allocations in the next two years and as institutions already in hedge funds look to add to those investments.
A survey of chief executive, chief investment and other senior officers at 84 institutional investors in Sweden, Norway, Denmark and Finland showed 38% of institutions are invested in hedge funds and 51% plan allocations by late 2005. The survey was administered by Prospera Research on behalf of Informed Portfolio Management AB, Stockholm, and the Alternative Investment Management Association, London.
By that time, 61% of Nordic institutional investors are expected to have hedge fund investments, according to the survey.
“In response to moderate equity return expectations investors look to add more active investment strategies to their portfolios,” said Lars Ericsson, partner at IPM, in a statement.
The institutions surveyed had combined assets of more than 450 billion euros.
Of the Nordic institutions that currently have hedge fund investments, more than half–roughly 55%–do so through external managers. Close to 30% use a mix of internal and external management, and about 12% use internal management only, according to the survey.
Only about one-quarter of the institutions use outside consultants to help them make external allocations.
The average hedge fund allocation among Nordic institutional investors ranges from 1% of portfolios at larger institutions to 4% at smaller funds. The median asset-weighted allocation is 2%. Additionally, there are regional variations in allocations. Institutional investors in Finland allocate the most, on average, to hedge funds at 6% of their portfolios. Swedish investors allocate an average of 4%, Denmark investors 2% and Norwegian investors 1%, according to the survey.
Most institutions today–about 43%–invest in hedge funds through single-strategy managers, compared with about 33% that invest through funds of funds. That trend is not expected to continue. Roughly 61% of survey respondents indicated that they planned to invest in hedge funds via funds of funds within two years, compared with about 52% through single-strategy managers.
The survey also showed that institutional investors in Nordic countries anticipate an median equity risk premium over bonds of about 3.5% and that they allocate relatively few of their assets to equities, 27% on average.