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Bailey McCann, Opalesque New York:

Institutional portfolios have been able to reap the rewards of diversification and higher returns by allocating to alternatives, according to a new historical analysis done by PGIM. Researchers considered a variety of alternative strategies and portfolios over the period from Q1 2000 to Q1 2015 for the study. Some of the results were predictable - specifically that many alternative strategies have time-varying albeit significant embedded exposure to cheaply accessible market betas. But others were less so - macro and relative value strategies seem to be the lowest risk and also had the lowest drawdowns among alternatives over the study period.

According to Karen McQuiston, Managing Director and Head of Multiasset-class Solutions at PGIM, a finding such as the lower risk involved in macro strategies, is one of the key reasons why institutions hang on to alternatives and hedge funds in particular. In other cases uncorrelated returns also keep investors in the asset class. "We were surprised to see institutions sticking with hedge funds, because the narrative out there right now is really negative and focused on performance. But I think critics underestimate the diversification benefits hedge funds can bring to a portfolio," she tells Opalesque.

For allocators with over $1 billion in hedge funds, the report shows that those investors can be committed to as many as 30 managers at once. The number of manager relationships can add div......................

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