UK – Consultants’ advice and the perception of risk are putting UK pension schemes off investing in hedge funds and private equity, JP Morgan Fleming Asset Management says.

“As was evident with private equity non-investors, the perception of risk and advice from consultants are discouraging pension schemes from investing in hedge funds,” the firm said in a survey of alternative investments.

“Additionally, 47% were concerned that the sector was becoming overpriced, which is deterring them from investing.”

The firm surveyed 111 UK local authority and private sector schemes representing £157bn (€228bn) of assets and found that subdued equity returns have forced pension funds to seek alternatives.

It said that 58% of respondents have “changed their attitudes towards alternative investment strategies as a result of the decline in stock markets over the last few years”.

Nearly two-thirds of these respondents stated that the subdued returns from equities had made them consider non-traditional asset classes as an alternative form of investment. In addition, there is a clear desire for UK pension schemes to build more diversified portfolios and alternative assets are being considered for this reason.

“An overriding theme emerging from the survey is that pension schemes currently allocating assets to alternative investments are highly satisfied with investment performance,” said Peter Ball, head of UK institutional business.

“The majority surveyed stated that returns had either met or exceeded expectations for all asset classes, which is a strong endorsement of non-traditional assets, especially during a difficult time for stock markets.

“As pension plans look to build more optimal portfolios, further inflows into these asset classes can be expected in the future.”

He added that there should be more investment in training trustees about alternative asset classes.

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