A JPMF survey has found that European institutional investors are increasingly looking to alternativ...
A JPMF survey has found that European institutional investors are increasingly looking to alternative investments to secure returns, posing a potential threat to retail investors.
Driving institutions away from long-only equities and fixed income funds is the global gap between pension liabilities and pension assets, which is currently 2.1trn euros, JPMF says.
A big reason for that gap is the 40% drop in the value of shares caused by the three-year bear market.
Despite some indications that institutions would want to "play it safe" after such a mauling, the survey found that most believe alternative investments will play an increasingly important part in their overall investment strategies.
"Pension funds across Europe are very keen to see how alternative asset classes can help to diversify sources of risk and enhance the long-term potential for growth," the survey says.
JPMF's survey is based on responses from 341 institutions representing more than 1trn euros in assets under management – including 171 of the top 350 UK pension funds.
The big problem for retail investors is that if institutions lower their demand for buying shares through long-only funds, then prices should drop, all things being equal.
Bond prices could also be threatened if institutions reduce their exposure to fixed income in favour of alternative investments.
Meanwhile, the average retail investor looking to build retirement wealth is all but completely shut out from the asset classes studied in the survey: hedge funds, private equity investments, real estate and currency overlay.
For example, hedge funds are out of bounds to retail investors because of FSA regulations, while investment in commercial real estate for pensions purposes is restricted by Inland Revenue rules.
Private equity investments often require minimum sums well in excess of what most average retail investors can afford.
Still, UK retail investors remain on the whole positive according to another JPMF survey.
It shows that about a third believe the stock market will go higher in the next six months, while another third are undecided and the remaining third feel the value of shares will fall.
The split represents a slight downturn in confidence compared to a similar survey taken a month ago, mostly caused by increased concerns that the stock market rally since March cannot be sustained without better economic news, JPMF says.
Overall, however, some two-thirds of UK retail investors still expect the stock market to either make additional gains, or at least maintain the gains made so far this year, the survey says.
An ambitious objective
'Something completely new'
'Illusion of control'
Reasons to be cheerful
Total investment reaches £9m