May 14, 2024 — U.K. local authorities are pouring assets into alternative asset classes, with allocations to alternatives in institutional portfolios now at the same level as fixed income.
The share of overall assets in U.K. local authority portfolios allocated to alternatives jumped to 17% in 2023 from just 7% in 2013. Over that same period, local authorities scaled back allocations to public equities from 60% to 51% with the majority of that reduction coming from active equities.
“Local authorities in the U.K. have been particularly active in alternatives,” says Mark Buckley, Global Head of Investment Management at Coalition Greenwich. “A significant percentage of this increase has come in just the past few years, with local authorities’ alternatives allocations increasing from 11% in 2021 to 17% in 2023.
Coalition Greenwich is projecting a continued strong flow of assets into alternatives. About a quarter of local authorities participating in the Coalition Greenwich Voice of Client – 2023 U.K. Institutional Investors Study say that they plan to significantly increase allocations to private debt and infrastructure equity over the next three years, with 20% saying that they will also meaningfully expand allocations to private equity.
“U.K. local authorities are looking to continue their broad move into alternatives,” says Mark Buckley. “These institutions plan to increase allocations across multiple alternatives asset classes with one-third of local authorities indicating that they expect to hire a new manager in the next 12 months.”
Investment Consultants Remain Hugely Influential
Approximately 90% of U.K. institutional investors indicate that they work with an investment consultant, a figure that remains virtually unchanged in Coalition Greenwich research from a decade ago. A similar percentage of investors say that investment consultants are their primary source of investment counseling and advice.
“Investment consultants remain dominant in the U.K. With only 3% of institutional investors indicating that they expect to hire a new consultant in the next 12 months, the strength of existing asset manager relationships with consultants, and how effectively relationships with joint clients are managed, is paramount,” says Mark Buckley.
New research from Coalition Greenwich presents the highlights of the Coalition Greenwich Voice of Client – 2023 U.K. Institutional Investors Study, including analysis of the primary challenges facing U.K. institutions, the role of ESG in institutional manager selection, top criteria used when selecting managers, thought leadership consumption patterns, and the use of investment consultants and other external providers for investment advice, OCIO and other services.