European investors may ramp up allocations to private assets during the coming 12 months.

European investors, both retail and institutional, are showing a growing interest in hedge funds and alternative investment options, as indicated by recent findings from Cerulli Associates. In the UK, Italy, and Switzerland, there’s a notable preference for semi-liquid funds for private market investments, with 50% of UK wealth managers favoring this approach.

Semi-liquid funds are also popular among high-net-worth and ultra-high-net-worth investors. (funds europe)

Institutional tilt in favor of liquid alternatives

Moreover, among the 207 institutional investors that Cerulli surveyed from December 2022 to January 2023, 39% are considering increasing their allocations to liquid alternatives within the next 12 to 24 months.

Furthermore, more than a third (36%) of the 153 private banks and wealth managers surveyed in January 2023 have intentions to enhance their allocations to both hedge funds and liquid alternatives.

Although concerns about overexposure to private assets exist, the majority of investors are actually under-allocated, and the previous year demonstrated that liquid alternatives can effectively diversify portfolios and mitigate risk.

Hedge funds also on shopping lists

About 39% of European asset owners who previously invested in hedge funds plan to increase their allocations in the coming year, said Cerulli. Similarly, 36% of the region’s private banks and wealth managers intend to recommend hedge funds more strongly within the same time frame.

Institutional investors are diversifying beyond traditional investments by considering non-UCITs and offshore hedge funds, aiming for strategies that allow for higher volatility and fewer ESG restrictions in pursuit of potentially increased returns.

The Cerulli report anticipates a rise in alternative fund launches, with a positive outlook for hedge funds in 2023 due to factors like rising interest rates and increased market volatility. These conditions are seen as an opportunity for sophisticated investors to capture market discrepancies and asset mispricing.

Related Story:  Liquid Alternatives – Investing In Liquid Alts In 2023

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