Alternative Investments Essential In Volatile Markets
| Business Wire, Inc. |
Concerns about
According to the survey, most U.S. institutional investors say that traditional diversification and portfolio construction techniques need to be replaced (64%) and no longer consider conventional 60/40 portfolios to be the best way to pursue returns (72%). Approximately two-thirds believe that increasing allocations to non-correlated assets (64%) and increasing the use of liquid alternatives (68%) are effective strategies for managing portfolio risk.
“Years of market instability have U.S. institutional investors on edge,” said
European market risk and fiscal shortfalls, possible regulatory changes causing investors to lose sleep
Most U.S. institutional investors (68%) cite Europe’s financial woes as one of the three most likely sources of market volatility in the next two years. Nearly half (47%) say Europe’s woes are one of the top three issues keeping them awake at night, followed by 30% who selected regulatory uncertainty.
Asked about the highest threat to meeting institutional investment objectives, 40% of the respondents cited global equity market risk, with global fiscal imbalances ranked second (36%).
Investors also are concerned about impacts of anticipated regulatory changes. A substantial majority of U.S. institutional investors (85%) believe there will be a tightening of regulatory restrictions on financial institutions and capital markets participants, regardless of the outcome of the U.S. elections.
Three in four (74%) believe U.S. financial institutions will have limits placed on their market-making abilities, resulting in their being less competitive. A majority (64%) believe mark-to-market regulatory requirements prevent investors from being able to capitalize on market opportunities.
If I had to do it all over again, I would invest in alternatives
Of the respondents who invest in alternative investment products such as hedge funds, private equity and alternative mutual funds, 88% are pleased with the performance of their investments.
When asked what they would do if they had to make the choice all over again, 93% said they would increase their allocation to alternatives or invest the same amount, and just 7% said they would decrease their allocation.
Attention to risk, use of alternatives
When asked whether allocations to the following categories of alternative investments were above, below or on target, institutional investors said:
| Strategy | Above Target | On Target | Below Target | |||||||||
| Private equity | 26% | 54% | 20% | |||||||||
| Single manager hedge funds | 25% | 55% | 20% | |||||||||
| Funds of hedge funds | 23% | 61% | 16% | |||||||||
| Real estate | 19% | 57% | 24% | |||||||||
| Global macro funds | 18% | 62% | 20% | |||||||||
| Commodities | 18% | 64% | 18% | |||||||||
| Multi-asset absolute return funds | 17% | 73% | 10% | |||||||||
| Venture capital | 11% | 65% | 24% | |||||||||
| Infrastructure | 6% | 78% | 16% |
“Investors are right to reassess their methods of managing and diversifying risk,” NGAM’s Hailer said. “Given the big, abrupt market swings we’ve seen in the last few years, making risk a top priority is a sensible adjustment. The same is true of alternative investments, since they help investors assemble durable portfolios that can perform well whether markets move up or down.”
Methodology
The online survey of 151 U.S. institutional investors, which manage assets on behalf of corporate and public pension funds, endowments and foundations, insurance reserves/liabilities and sovereign wealth funds, was taken in June and July of 2012. The confidence interval is plus or minus 4.4%. The median asset level managed by U.S.-based respondents was approximately
The U.S. study is part of a larger global survey of 482 institutional investors in 13 countries in
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1Cerulli Quantitative Update: Global Markets 2012 ranked
2Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part 1.
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