Hedge funds will grow in popularity in 2005 as investors search for returns in what is expected to be another year of modest growth in equity markets, market analysts have predicted.
Investment managers expect economic growth to remain at current levels within Europe this year, according to a new survey by Mercer Investment Consulting.
"If managers' predictions are correct, 2005 will be a year of moderate investment returns", said Mr Tom Murphy, Head of Mercer Investment Consulting in Ireland.
One of the biggest growth areas for the pensions industry is expected to be hedge funds.
"The areas of anticipated growth reflect an underlying belief that returns from mainstream equities and bonds will be modest in 2005 and beyond. While we welcome greater emphasis on focused fund management and performance-related fees, the question is whether hedge funds will improve on their distinctly lacklustre performance in 2004", added Mr Murphy.
"Annual returns of around 7 per cent are predicted for European equities and just 3 per cent for European bonds. Given the structure of most Irish pension funds, this implies overall returns of less than 6 per cent for 2005", Mr Murphy said.
Looking further ahead over the next three years, returns are expected to be between 5 per cent and 10 per cent for equities and 0 per cent and 5 per cent for bonds.
Less than 1 in 20 managers believe that equities will deliver annual returns in excess of 10 per cent over the next three years.