Alternatives appetite 2016: Bulk up or slim down?

January started the year off with a bang. With volatility fears front and center, it seemed a good time to take the pulse of investors regarding their commitment to alternatives in 2016.

SHOW ME THE MONEY

First, some positive data about the state of the industry: Preqin, one of the alternative industry's leading investment research firms, reported that, as of year-end 2015, alternative asset managers now manage a record $7.4 trillion, a jump of $500 billion from the $6.9 trillion in AUM it reported for 2014. Of this $7.4 trillion, private equity firms lead, with $4.2 trillion in AuM and hedge funds running $3.2 trillion in assets.

Additionally, according to a Reuters poll(http://www.finalternatives.com/node/32452Managers Raising Exposure in Search for Uncorrelated Returns) conducted globally of fund managers and CIOs about investor holdings, investors are reallocating their global portfolios by reducing US equity holdings to 37% (a drop of 1% and the lowest level in five years), while also trimming US bonds to 35.8%, a drop of 2.4%, the lowest since June 2014, and raising cash levels to 6.5%, the highest since June 2015. Of particular note in this Reuters survey was that managers raised their exposure to alternatives, which include hedge funds, private equity and infrastructure, to 7.1%, the highest level ever, in a search for less correlated returns.

OBJECTIVE...SUBJECTIVE...DIRECTIVE?

2015 was arguably a ho-hum year for both traditional and alternative investments in terms of returns. While both categories managed to avoid going negative, their lackluster performance with gains of slightly more than 1% in the S&P500TR and a mere .05% for the Barclays Hedge Fund Index meant that the average investor had very little to show for their dedication to their allocations over 2015. January's rollercoaster of performance however, has galvanize......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.