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Study says Nordic investors expect to increase fund of funds allocation

Nordic institutional investors plan to increase significantly their allocation to funds of funds over the next two to five years even though their overall allocation to private equity is expected to remain little changed, according to a new study sponsored by Swiss fund of funds manager Adveq.

Future allocation to fund of funds is expected to rise from 14 per cent to 28 per cent because the region's investors, although now relatively experienced, often lack the resources to manage their private equity portfolios themselves, the study said. They recognise the benefits of outsourcing some of the fund selection and monitoring process, it added.

The study said that private equity was now an established asset class among Nordic institutions, with 43 per cent of institutions running some sort of private equity programme. Their average allocation at present is 3.2 per cent of total assets and is expected to remain little changed at 3.4 per cent over the next five years.

Andre Jaeggi, managing director at Adveq, said, 'Over the past few years, private equity has gained popularity amongst investors seeking an asset class that will provide the superior returns that traditional assets have failed to produce. The Nordic region has long been regarded as an important and progressive player in the global private equity market and the findings of this study confirm that private equity is now widely recognised amongst Nordic institutions as being a key component of their investment portfolios.'

The study found that Nordic institutions were expecting to get an average absolute return on their investments of around 10.5 per cent and an outperformance over public equity of around 489 basis points.

Among other findings, the study said Nordic investors expected to reduce their exposure to European private equity, chiefly buy-outs, from 74 per cent of their portfolio at present to around 65 per cent. Emerging markets will be one of the areas to benefit.

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