Fri, Sep 19, 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. SEC charges 19 investment firms and one trader for breach of Rule 105[more]

    Benedicte Gravrand, Opalesque Geneva: The Securities and Exchange Commission (SEC) started a push to enhance the enforcement of Rule 105 of Regulation M last year to uncover hedge funds and private equity firms that have illegally participated in an offering of a stock after short selling it duri

  2. Fund managers, bullish on Europe, anticipate monetary policy separation of Fed and ECB[more]

    Komfie Manalo, Opalesque Asia: At least 202 fund managers with $556bn of assets under management said that while the European Central Bank (ECB) has eased its monetary policy that sent sentiments towards Europe to pick up, the Fed is expected to hike its rate in the spring of 2015. Investor

  3. Institutions - North Carolina workers call on state pension to dump up to $6bn in hedge funds, UK pension fund criticizes hedge fund fees[more]

    North Carolina workers call on state pension to dump up to $6bn in hedge funds From Forbes.com: The State Employees Association of North Carolina this afternoon called on state Treasurer Janet Cowell to withdraw all investments in hedge funds, which appear to amount to approximately $6 b

  4. News Briefs - Limited partners of investment managers may be subject to self-employment taxes, Just one week left until NYC's Rocktoberfest[more]

    Limited partners of investment managers may be subject to self-employment taxes On September 5, 2014, the Internal Revenue Service (“IRS”) issued Chief Counsel Advice 201436049, concluding that members of an investment manager were subject to self-employment taxes with respect to their e

  5. Institutions - Adviser's faith in hedge funds unshaken by CalPERS' move Advisers weigh in on CalPERS’ decision, Gina Raimondo sees no reason to follow California’s lead, exit hedge funds, Danish pension funds step up 'alternative investments'[more]

    Adviser's faith in hedge funds unshaken by CalPERS' move From WSJ.com: Financial advisers who use hedge funds in their clients' portfolios say they aren't rethinking that approach after a huge California pension fund announced plans to exit the hedge-fund market. The decision by the Cali