European institutional allocators continue to invest in alternative investments in heavy numbers, according to the latest Context Allocator Trends Report produced by Context Capital Partners.
The latest study showed that 72 per cent of European investors are optimistic about the future of the alternative asset management industry, with more than half (60 per cent) planning to increase their net positions in alternative investments by the end of 2018. This mirrors survey results from Context Summits Miami 2018 earlier in the year, which showed 83 per cent of US-based allocators were optimistic about the industry and nearly 70 per cent planned to increase their net positions to alternatives in 2018.
Among the most talked about alternative investments for European investors in 2018 are ESG and crypto strategies. The data revealed that 43 per cent of European investors already have ESG as part of their overall investment strategy, and 59 per cent plan to increase their allocation to ESG- or impact-related funds this year. Meanwhile, even though cryptocurrencies garnered a lot of attention for their rapid growth and underlying technology, European investors remained sceptical that they could fit into a part of their investment portfolio, with just 5 per cent of allocators currently invested in crypto funds and less than 3 per cent planning to allocate to crypto funds for the remainder of 2018.
The survey of 88 institutional investors and family offices was conducted at the second annual Context Summits Europe event hosted by Context Summits, the preeminent producer of investment summits for the alternative asset management industry. More than 450 institutional allocators, family offices and fund managers, representing more than USD1 trillion in cumulative assets under management, attended Context Summits Europe 2018, which was held in Barcelona, Spain on May 14-16 2018.
"Despite continued geopolitical uncertainty in Europe over the past 12 months, European institutional investors and family offices continue to seek diversification through alternative investments," says Ron Biscardi, CEO of Context Capital Partners. "A lot has happened over the course of the year, but European allocators' optimism about the alternative asset management industry has not waned. The emergence of new and interesting strategies and asset classes, especially ESG and crypto, means investors can stay prepared for any potential market gyrations."
John Culbertson, chief investment officer of Context Capital Partners, adds: "Between Trump's presidency and the continued Brexit negotiations, among other things, it's no surprise that European investors are taking a cautious approach towards the market in 2018. Rising interest rates in Europe and the US, continued geopolitical instability, and the continued threat of a prolonged US-China trade war has led to apprehension among European allocators. The appeal of alternative investments, however, remains strong and the demand for differentiated alternative investment strategies continues to grow."
According to the report, almost three quarters of investors (75 per cent) said they prefer to allocate additional capital to new or emerging managers, defined as those with fewer than USD300 million in assets or less than a three-year track record. Over half of investors (52 per cent) said they are looking for a fund with a 1-3-year track record.
Nearly half of European investors (43 per cent) meanwhile, consider ESG, or other responsible investing factors, as part of their investment strategies, with 60 per cent planning to increase their allocation to ESG- or impact-related funds in 2018. In contrast, institutional investors are still widely sceptical of cryptocurrencies, with less than 5 per cent of European attendees surveyed investing in cryptocurrencies and only 3 per cent planning to allocate to crypto funds in 2018.
European investors also appear far more open to mathematical strategies compared to their US counterparts. Almost 60 per cent of European attendees have shifted portions of their portfolio over to algorithmic and quantitative strategies and away from those with a more fundamental approach. In comparison, fewer than three in 10 American investors surveyed at Context Summits Miami 2018 said they've replaced their hedge fund exposure with such strategies.
In addition, European investors predicted that commodities and emerging markets will be the strongest performers for the rest of 2018. Commodities led the way with 34 per cent of the vote, while emerging markets polled at 29 per cent.
While the majority of investors at Context Summits Europe 2017 (78 per cent) viewed MiFID II as a burden due to the expectation of higher fees and onerous restrictions, 82 per cent of 2018 attendees from across the continent said MiFID II regulations had no impact on their manager fees. In addition, half said that MiFID II and other regulations have not affected where they direct their capital; another 23 per cent said financial regulations had little to no effect on their allocation decisions.
A majority of investors (58 per cent) surveyed also said Brexit has yet to affect the region's hedge fund industry in any significant way, while 17 per cent of investors said that Brexit-related fears had discouraged new hedge funds from opening up shop in the UK. Only 14 per cent of investors reported that they were allocating less capital to UK-based hedge funds, and just slightly more than one in 10 attendees said that the fallout from Brexit has shrunk the local talent pool.
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