Germans start to look at alternatives: Oppenheim

GENEVA (Reuters) - Rich German investors, while inherently cautious about alternative assets such as hedge funds, have made big strides toward accepting them over the past five years, said a partner at family-owned bank Sal. Oppenheim.

Alternative assets make up 5 to 7 percent of the wealth managed by Sal. Oppenheim, Christopher von Oppenheim told a Reuters summit in Geneva on Tuesday.

"Five years ago, this (allocation) would have been zero," said the partner at the blue-blooded German private bank.

But the move into alternative assets has yet to become a stampede, he said. "Germans are still, in their asset allocation, quite conservative.

The wealthy business families that form a large chunk of the German private bank's client base hold about 60 to 70 percent of their wealth in their own businesses, 15 to 20 percent in property and 5 to 15 percent in liquid assets, he said.

Globally, investors have poured money into alternative assets in recent years. The hedge fund sector holds up to $1.7 trillion, according to some industry estimates.

Well-heeled private investors and institutions such as pension funds are being encouraged by financial advisers to consider alternative assets to avoid heavy exposure to stocks and bonds and get new streams of investment returns.

EARLY STAGE

Some analysts estimate that in countries such as Britain, investors' allocations to alternative investments could move into double-digit percentages of portfolios over the next five years.

Von Oppenheim said Germans' enthusiasm for private equity and hedge funds was at an early stage.

"You have a client who may be an engineer, a pharmacist, an architect, or in technology ... they are not financial whiz kids ... so we don't push (alternative assets)," he said.

At present there is more enthusiasm by investment banks to sell alternative asset products than enthusiasm from clients to buy them, he said.

Private equity funds were attacked by Germany's left-of-centre Social Democratic Party last year, which branded them as "locusts" for trying to take over German businesses, restructure firms and sell them at a profit.

Von Oppenheim said attitudes to private equity investing would change as examples came through of businesses becoming successful and hiring workers as a result of private equity turnarounds.

"In Germany, you see now that these are industry groups forming ... the success stories ... we are turning the corner."

Von Oppenheim said his bank advises clients to invest in alternative assets by using the fund-of-funds model to spread risks.

A fund of funds enables investors to get exposure to a range of separate private equity or hedge fund investment strategies through a single package deal. It typically charges an additional layer of fees above those charged by each fund in the package.