Thu, May 26, 2016
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. Paul Tudor’s hedge fund trims fee amidst poor performance, keep investors[more]

    Komfie Manalo, Opalesque Asia: Paul Tudor’s $11.6bn hedge fund firm Tudor Investment Corp. announced on Monday it would slash down fees of one of its biggest fund to 2.25% of assets and 25% of profits amidst backlash arising from poor performa

  2. Ares Capital to buy American Capital in $3.4 billion deal[more]

    From PIOnline.com: Ares Management's business development company Ares Capital Corp. is buying troubled BDC American Capital for $3.43 billion, said a joint news release by the BDCs and another release by Ares Management. Ares Capital Corp.'s assets are expected to grow to about $13.2 billion when t

  3. Performance - Hedge fund ETFs take a battering, Have long-short credit funds delivered?[more]

    Hedge fund ETFs take a battering From ETFStrategy.co.uk: It was a blow for the hedge fund world when Hillary Clinton’s son-in-law Marc Mezvinsky announced he would be closing his Greek-focused fund after it plummeted in value by 90%, just two years after it launched. For passive investor

  4. Launches - Man Group and American Beacon launch new emerging debt fund, Nikko AM launches new Japan equity UCITS fund[more]

    Man Group and American Beacon launch new emerging debt fund American Beacon Advisors, an experienced provider of investment advisory services to institutional and retail markets, launched the American Beacon GLG Total Return Fund today. The Fund became effective May 20. The America

  5. Emerging markets hedge funds perform strongly, but capital base erodes[more]

    Komfie Manalo, Opalesque Asia: Latin American Emerging Markets and Russian hedge funds lead industry gains in the first months of 2016, posting strong performances through April as global and EM equity, commodity and currency markets surged in recent weeks following steep losses to begin the year