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Benedicte Gravrand, Opalesque Geneva:

Slow economic growth and persistent low interest rates will be the main factors driving single-digit investment returns over the next five years, according to Northern Trust’s annual five-year market outlook. And this includes returns for hedge funds and private equity.

Hedge funds vary greatly by risk exposures and alpha potential, but Northern Trust forecasted an average through the HFRI Fund Weighted Composite Index, which should return 3.4%, annualised over the next five years (the index was up 1.77% in July, 2.98% YTD, and up 3.06% in the last three years). "The return of the average hedge fund will be hurt by lower risk exposure returns and lower alpha," the report notes, "magnifying the importance of manager selection."

Private equity will see a slight moderation in its illiquidity premiums as interest in this type of investment grows. As private equity returns are difficult to predict, Northern Trust trimmed the historic premium of 2.5% to 2% "to reflect concerns over heightened investor interest and expensive valuations, recognising that global equity valuations are also elevated." The forecast comes in at 7.4%.

The report also forecasts average returns 5.8% for global equities (5.4% for developed market eq......................

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