LONDON & NEW YORK–(BUSINESS WIRE)–Nov. 11, 2003–Russell Investment Group:
— Commitment to private equity and real estate remains high
among institutions worldwide as they increase strategic
allocations and commitments to hedge funds
— Comprehensive study tracks 11 years of institutional
investment trends in alternatives
Goldman Sachs International and Russell Investment Group today announced the publication of their sixth global report on alternative investing by tax-exempt institutions (public and corporate pension funds, endowments and foundations, and other funds) in North America, Continental Europe, the United Kingdom, Australia and Japan.
Institutional investors throughout the world have remained committed to alternative investments while equity markets have been volatile. Private equity, real estate and hedge funds continue to move into the mainstream and now hold an established place in many of the world’s largest institutional portfolios as these investors look for portfolio diversification and additional returns. Since the first survey in 1992, participation in each alternative asset class has continued to grow across all regions.
Major findings include:
— In North America and Europe, commitments to private equity and
real estate remain high. Despite poor returns in the past few
years, commitments to private equity among North American
(Canadian and United States) respondents total US$179 billion.
Moreover, participation in private equity increased to 70% of
respondents in 2003. 43% of European respondents currently
invest in private equity, committing US$16 billion to these
investments.
Survey results reveal that real estate commitments are also
substantial; in North America, real estate commitments are
US$73 billion with 56% of respondents investing. European
participation in real estate is 49%, with US$42 billion in
commitments.
North American and European institutions demonstrated their
continued commitment to private equity and real estate by
maintaining or increasing their strategic allocations to these
investments. Moreover, institutions in all regions predicted
their allocations to private equity and real estate would rise
over the next few years.
“Among the largest institutions, despite tumultuous markets,
private equity and real estate allocations are surprisingly
stable,” said Hal Strong, president and managing director of
alternative investments at Russell.
— Allocations to hedge funds rise considerably in all regions,
indicating further acceptance of hedge funds as an investment
approach. Allocations more than doubled in Europe and Japan,
and they are predicted to continue rising swiftly.
Participation in hedge funds increased to 25% of respondents
worldwide from 17% in 2001. Commitments also increased
substantially, up 40% in North America, 65% in Europe, and
200% in Japan (from a low base). Worldwide, commitments to
hedge funds by these institutions top US$22 billion.
“Many institutional investors endorsed hedge funds in the past
two years with new or significantly increased allocations and
commitments,” said Nigel O’Sullivan, Managing Director at
Goldman Sachs International’s Pension & Insurance Strategy
Group.
— Funds of funds are increasingly popular investment vehicles
for private equity and hedge fund allocations in all regions.
In North America, for example, funds of funds comprise a
steadily growing portion of private equity commitments,
increasing from 2% in 1997 to 11% in this year’s survey.
Similarly, the percentage of North American respondents
investing in funds of hedge funds increased considerably from
29% in 2001 to 50% this year.
— Investors have achieved solid returns for their alternative
investments, and their return expectations going forward
remain optimistic. Median annualized returns forecasts for
North America among respondents was 12% for private equity,
10% for hedge funds and 9% for real estate. European
respondents expect 11% for private equity, 7% for hedge funds
and 7% for real estate. Australians expect 10% for private
equity and 8% for real estate.
— Respondents worldwide revealed similar approaches to real
estate investments, focusing on direct investments and
investments in their respective regions. Investors in North
America, Europe and Australia have more than half their
capital committed to direct investments in land and buildings.
Over half of North American and European respondents indicated
that they intend to invest only in their home regions.
— Hedge funds remain more popular than private equity with
Japanese respondents. Of the 49 survey respondents in Japan,
only six reported commitments to private equity for a total of
US$360 million, whereas 20 had commitments to hedge funds
totaling US$2 billion and eight more reported plans to start
investing in hedge funds in the next three years.
“It is clear from the 2003 survey results that alternative investments are an increasingly important part of institutional investment portfolios in markets around the world,” said O’Sullivan. “With each survey we discover institutions taking even greater advantage of the benefits provided by these investments.”
About the Report
Since its inception in 1992, the Goldman/Russell Report on Alternative Investing has been an important tool for institutional investors in alternative investments — becoming a barometer for industry standards and investment levels. Published biennially and jointly by Goldman Sachs and Russell, the report helps investors broaden their knowledge about industry best practices, stay abreast of trends and structure their alternative investment commitments intelligently. The 2003 report focuses on determining, on a percentage basis, the types of alternative investments that are being used by investors, particularly the growth and composition of these investments, as well as geographic diversification.
The survey target list includes the largest pension funds, foundations and endowments (generally assets of US$3 billion or more). The survey is given in an objective format and respondents are asked about their views and methodologies concerning alternative investments. The 2003 survey results are based on the detailed information provided by 325 organizations in North America, Europe, Australia and Japan.
About Goldman Sachs
Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.
About Russell
Russell Investment Group, a global leader in multi-manager investing, provides investment products and services in more than 35 countries. Russell manages more than $85 billion in assets and advises clients worldwide representing more than US$1.6 trillion. Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Singapore, Sydney, Auckland and Tokyo. For more information, go to www.russell.com.
Russell Investment Group is a registered trade name of Frank Russell Company, a Washington, USA corporation, operating through subsidiaries worldwide. Frank Russell Company is a subsidiary of The Northwestern Mutual Life Insurance Company.
In general, alternative investments involve a high degree of risk, including potential loss of principal; can be highly illiquid and can charge higher fees than other investments. Hedge strategies and private equity investments are not subject to the same regulatory requirements as registered investment products. Hedge strategies often engage in leveraging and other speculative investment practices that may increase the risk of investment loss.
