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Alternative Market Briefing

New sources of alpha will become important in the next six years: Fidelity

Friday, March 15, 2019

Laxman Pai, Opalesque Asia:

Institutional investors are confident that private market investments and new sources of alpha will become important in the next six years, and the largest are reshaping their portfolios to reflect those beliefs.

The Fidelity Global Institutional Investment Survey pointed out that many asset allocators expect primary asset class returns for the next 20 years to be lower than they were for the past 20.

Despite headwinds, many institutional investors have maintained return targets of 6% to 7%, said the survey that features the latest views of more than 900 institutional investors worldwide, with a wide range of institution types and sizes representing $29 trillion, or approximately half of all global institutional assets under management.

"With lower returns expected, the average private pension portfolio, for example, would earn projected real returns of 3.7% under median market conditions, down from historical returns of 5.7% from 1950 to 2017," the report said.

Heavy and growing investment in private markets may be shrinking the investable public equity universe as more companies (and more investor capital) stay in the private markets, it said.

Institutions also believe that new technology-driven approaches may make what remains of the public markets more efficient, potentially making traditional alpha-defined as excess return due to manager skill-harder to find within this shrinking universe. This belief may su......................

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