There is a sustained appetite for alternative investments among institutions and financial advisers in the US, according to a survey by investment research provider Morningstar and Barr
There is a sustained appetite for alternative investments among institutions and financial advisers in the US, according to a survey by investment research provider Morningstar and Barron’s, a business and finance magazine.
The survey found that for institutions limited partnerships, including hedge funds, direct real estate and private equity, are the most popular alternative vehicles.
Almost half of institutions surveyed allocate more than ten per cent of their portfolios to alternative investments, and nearly 20 per cent allocate more than 25 per cent of their portfolios to alternatives.
Institutions generally expect their portfolio allocations to alternative investments, particularly hedge funds and private equity, to increase over the next five years. Close to a quarter (23 per cent) of institutions expect to invest more than 25 per cent of their portfolios into alternatives.
Previous excitement seen over 130/30 and all manner of leveraged net-long investment strategies appears to have diminished. More than 70 per cent of institutions expect assets invested in leveraged net-long strategies to remain unchanged in 2009.
The survey also found that advisers are predominantly investing in alternative investments through liquid, regulated and transparent vehicles such as mutual funds and exchange-traded funds.
However, they are also employing other non-traditional investments with their clients, like oil and gas limited partnerships, non-traded real estate investment trusts, church bonds and equipment leasing.
Among advisers who work with average individual investors, almost 80 per cent use alternative investments with some clients. About 40 per cent of advisors had more than half of their higher-net-worth clients in some alternative investments.
Most advisers – approximately 70 per cent – have no more than ten per cent of individual investors’ portfolios devoted to alternative investments. About half of advisers allocate more than ten per cent of higher-net-worth clients’ portfolios to alternatives.
Excitement about 130/30 funds also appears to have cooled among advisers. The majority (86 per cent) do not expect to increase investments in these funds next year.
Steve Deutsch, director of separate accounts and collective investment trusts at Morningstar, says: ‘Our survey found that both institutions and advisers want alternative investments that are liquid, transparent, and regulated like traditional investments. This demand is driving the convergence of traditional and alternative money management. We’re seeing more alternative investment strategies in mutual funds and ETFs, higher prevalence of retail and alternative money managers competing for assets under management, and traditional money managers acquiring, merging with, or recruiting alternative investment expertise.’
Morningstar and Barron’s conducted the internet-based survey in October 2008.
There were 252 institutions and 1,180 financial advisers who participated in the survey.
