Institutional investors are looking to alternative investments to improve performance and lower risk over the long term, according to a survey by Natixis Global Asset Management.
Seven in 10 (69 per cent) of institutional investors believe it is essential to invest in alternative investments – such as hedge funds, private equity or venture capital – to diversify portfolio risk. A similar percentage (63 per cent) believes it is essential to invest in alternative assets to outperform the broad market. US investors (with 73 per cent in agreement) are most likely to say alternatives are necessary to beat market returns.
Among respondents who use alternative assets, 85 per cent say they are pleased with the performance of those holdings, compared with 15 per cent who are disappointed.
Twice as many investors (24 per cent) who use alternatives would increase their allocation to those assets classes as would decrease it (12 per cent) if they had to do it all again; 64 per cent would keep their allocation the same. UK investors, at 44 per cent, are the most likely to say they would raise their allocation to alternative investments.
In a show of confidence, 61 per cent of investors say the alternative strategies they invest in will outperform last year’s returns. Some 71 per cent of Middle East investors expect better returns.
Almost nine in 10 (89 per cent) investors say increasing the use of liquid (more unconstrained) alternatives such as global macro or long/short equity strategies is an effective way of limiting portfolio risk.
Three in 10 (32 per cent) global investors say their institution’s allocation to real estate is below target; 40 per cent of investors in Asia and 39 per cent in Europe report the same.
More than one in four (28 per cent) global investors say their institution’s allocation to socially responsible investing is below target; half (50 per cent) of investors in the UK and 40 per cent in the Middle East also report below target allocations.