The most likely sources to derive their extra allocation from would be cash and fixed income, according to the report which surveyed 373 investors representing, banks, wealth managers, pension funds and insurance companies.
On average, European investors aim to invest a total of 15% of their portfolios in alternative investments, compared to 17% in the United States. American investors are considerably more risk-prone than their European counterparts, as they allocate just 33% of their portfolios to fixed income compared to 50% in Europe.
Family offices set the tone
When it comes to selection criteria for alternative investment funds, absolute performance and fund size are only of secondary importance. The length of the track record, organisational stability and fees are much more significance.
Family offices are the most eager alternative investors. They would ideally invest 43% of their assets under management in alternatives, which is almost as much as the combined share of equities and fixed income (see chart below). On the other end of the spectrum we find banks, which only invest 6.5% of their AuM in alternatives.
Deutsche Bank’s findings correspond with those of EIE. While most fund selectors working for banks have a very limited alternative funds range for clients to choose from or avoid them completely, family offices tend not to shy away from the asset class. Tim Peeters, a fund selector for the Belgian family office Portolani, told Expert Investor Europe recently he has replaced part of his bond portfolio with absolute return strategies and cash. “An allocation of roughly 20% to traditional bond funds should be a maximum to avoid the biggest effects of rate rises,” he said.
Rate hike worries
Two thirds of European investors taking part in the research are worried about the impact of rising interest rates. Diversifying their fixed income allocation is their most common response to the threat, followed by an overall increase in exposure to alternative investments (see chart on the side).
You can read the complete report here.