Wealthiest Europeans look to hedge funds, commodities

LONDON (Reuters) - Europe's wealthiest families are planning to shift their investments further away from traditional assets into alternatives such as hedge funds and commodities, a report showed on Tuesday.

The survey of European single family offices conducted by wealth management specialist Campden Media and investment bank Merrill Lynch found that alternatives would make up more than half of a typical family office portfolio in three years.

Family offices are professional investment groups set up around the private wealth of rich individuals and their families.

The survey looked at 30 of them in 10 European countries, around 39 percent of whom managed more than 1 billion euros ($1.52 billion) in assets.

It showed a typical portfolio holding 55 percent of its assets in hedge funds, commodities, property, private equity and other alternatives in three years, compared with 48 percent now.

Traditional investments such as stocks, bonds and cash would fall to 45 percent from their current level of 52 percent.

Gary Dugan, Merrill's chief investment officer for wealth management, said the shift in emphasis was a reflection of a need for long-term returns rather than a reaction to current market trends of falling equity markets.

"It is a deep decision," he said. "You would try to take as long a view as possible."

Britain, Germany, Norway and Spain made up the lion's share of respondents. Campden said that firms in Switzerland, which might have been expected to feature more prominently, were reluctant to participate because of confidentiality concerns.

"It is a very secretive market. It is very opaque," said Campden managing director John Pettifor, referring to single family offices in general.

HEDGE FUNDS, COMMODITES

Specifically, the survey showed equities falling to 31 percent of portfolios in three years from their current 34 percent. Fixed income looked set to drop to just 10 percent from 13 percent.

By contrast, exposure to hedge funds and funds of hedge funds combined was expected to rise to 18 percent from 14 percent.

Exposure to commodities, meanwhile, was seen quadrupling , albeit to just 4 percent of a portfolio from today's 1 percent.