Sat, Dec 20, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Institutional investors increase usage of alternatives, showing preference to alternative mutual funds over hedge funds - Morningstar survey

Tuesday, January 18, 2011
Opalesque Industry Update - Morningstar, Inc. a provider of independent investment research, and Barron's, the financial magazine published by Dow Jones & Company, released highlights of their third-annual national survey examining the perception and usage of alternative investments among 151 institutions and 669 financial advisors.

"Overall usage of alternatives continues to increase among both institutional investors and advisors, but the vehicles they're using to implement these strategies are changing," said Nadia Papagiannis, alternative investment strategist for Morningstar. "We've seen $2.7 billion flow out of the hedge funds we track through the third quarter of this year, yet $17.3 billion has flowed into alternative mutual funds. Investors seem to want the best of both worlds when they can get it—the diversification benefits of alternative strategies with the liquidity and transparency of publicly traded vehicles. And the investment industry is responding to this demand. Alternative and commodity mutual funds accounted for 14% of all funds launched in 2010 and 20% of all ETFs."

Among the major survey findings:

Current and Future Usage of Alternatives
More than 70% of institutions expect alternatives to account for more than 10% of their portfolios over the next five years; 37% (up from 25% last year) expect their portfolio allocation to alternatives to exceed 25%.

Again this year, more than half of advisors surveyed expect to see their clients' allocations to alternatives grow by more than 10% a year over the next five years.

More than 21% of institutional investors indicated that long-short strategies represent their largest alternative allocation, and it was the strategy most commonly cited for possible future investments. Managed futures was most commonly cited by advisors as the strategy that they intend to consider for investment going forward, and it was the second most commonly cited strategy by institutional investors.

Institutional investors have adopted traditional mutual funds and ETFs to implement more liquid alternative strategies, but continue to use hedge funds to access less liquid strategies like arbitrage, corporate actions, and distressed securities. Advisors, on the other hand, are primarily using liquid investment vehicles to access all alternative strategies.

Definitions of and attitudes toward "alternatives"
The importance of alternatives continues to increase. More than 70% of the institutions surveyed (up from 63% in 2008 and 64% in 2009) and 66% of advisors (up from 52% in 2008 and 58% in 2009) believe that alternatives will be as important or more important than traditional investments over the next five years.

Over the past three years, institutional investors have significantly changed their perception of natural resources equities. In 2008, about 80% of institutional investors surveyed considered them alternative investments, but less than 30% would put them in that category today.

Hot topic findings
Advisors were fairly evenly split in their opinions about the SEC's proposed Accredited Investor rule change—56% agreed and 44% disagreed with the rule change. The proposal would exclude primary residence in determining net worth, and potentially limit the access of some clients to private, less-liquid alternative investment vehicles such as hedge funds.

There was general strong agreement among both advisors and institutional investors that commodity returns are currently being driven more by demand than fundamental valuations.

The majority of institutional investors did not receive any fee concessions in the last year, as hedge funds that survived the 2008 downturn retained pricing power.

(press release)

Source

kb

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Big hedge funds win again on PetSmart, Riverbed, RBS sells real estate loans to hedge fund Cerberus, Talisman energy speculation: Which hedge funds could benefit?[more]

    Big hedge funds win again on PetSmart, Riverbed From CNBC.com: Another week, another set of wins for activist investors. On Sunday, pet supply retailer PetSmart agreed to the largest leveraged buyout of the year at $8.7 billion. Hedge fund firm JANA Partners had been pushing for a sale a

  2. Outlook - Hedge fund manager who remembers 1998 rout says prepare for pain, Bond guru Bill Gross predicts U.S. economic growth to dip to 2%[more]

    Hedge fund manager who remembers 1998 rout says prepare for pain From Bloomberg.com: Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia. He was soon working around the clock when investors began targeting the region’s

  3. Investing - Hedge funds get boost from healthcare in 2014, Paulson & Co takes stake in Salix on heels of inventory issues[more]

    Hedge funds get boost from healthcare in 2014 From Valuewalk.com: The healthcare sector started the year on a turbulent note, as stocks of many major biotechnology companies were battered. However, most of the players in this sector have bounced back. The BarclayHedge Healthcare & Biotec

  4. Comment - High fees and low performance hit hedge funds[more]

    From FT.com: Disenchantment over high fees and lackluster performance may finally be turning the tide against hedge funds, fresh data suggest. Despite generally weak returns since the global financial crisis, hedge funds have enjoyed positive net inflows every year since 2010. This helped assets und

  5. Performance - Lansdowne, Man Group, other hedge funds profit from shorts in oil, Turmoil boosts hedge funds that bet against Russia, oil, CTAs post strongest returns since December 2010[more]

    Lansdowne, Man Group, other hedge funds profit from shorts in oil From Valuewalk.com: The rising short interest in oil companies implies that the worst for oil is yet to come. Data from Markit shows that short exposure in energy sector of S&P 500 is still looming close to the highest mar