Investors remain optimistic about alternatives despite ongoing market volatility
The 2019 Context Allocator Trends Report reveals strong demand for alternative investment strategies, with 72 per cent of respondents noting they are optimistic about the industry and 97 per cent planning to increase or maintain their net positions in alternatives by the end of the year.
The report is based on responses from nearly 450 institutional allocators in attendance at Context Summits Miami 2019.
Ron Biscardi (pictured), co-founder and CEO of Context Capital Partners, says: “Despite the doom and gloom headlines around the industry, our survey highlights that investors are not pulling back from hedge funds, but rather taking a more sophisticated approach to how they allocate capital. This helps explain that despite the industry experiencing USD34.6 billion in net outflows in 2018, hedge fund managers who attended Context Summits Miami 2019 experienced USD7 billion in inflows during the same time period. We are quite confident strong demand for alternative investments will continue, particularly in investment strategies that are uncorrelated with traditional markets.”
The majority (63 per cent) of allocators believe the market in 2019 will perform better than in 2018, when the S&P 500 dropped by 6.24 per cent.
Allocators continued to show consistent support for emerging managers, with 57 per cent saying they favour new managers, defined as those with less than a three-year track record or less than USD300 million in assets under management, over more established managers. That figure tracks closely to the 60 per cent of investors who had the same sentiment in 2018 and is a number that has remained remarkably steady over the past few years.
While investors varied widely in how strongly ESG issues factored into their investment process, more than half of allocators (58 per cent) said that they looked at ESG issues when evaluating strategies. By comparison, when asked in 2018, 51 per cent of allocators indicated an intention to increase allocations to these funds and 38 per cent said they already consider ESG or responsible investor factors as part of their investment strategy. This slight increase suggests that investors have placed a greater value on ESG and look at it as more than just a checking-the-box exercise.
When ranking what topics keep them up at night, allocators agreed geopolitical risks worry them the most, followed by market volatility and the threat of trade wars. In contrast, allocators were less immediately concerned about climate change and the threat of military conflict.
“With risk’s to the global economy in the headlines every day, investors are keenly aware of the potential threats to their portfolios and are actively attempting to mitigate those risks by allocating to niche and innovative alternative strategies,” adds John Culbertson, President and CIO of Context Capital Partners. “Whether it’s offering a unique approach to managing the risks of a trade war or constructing a portfolio that is more robust than traditional allocation strategies, the alternative investment industry is set up to offer investors a path to navigate market volatility and uncertainty.”