(June 19, 2012) — Institutional investors worldwide are clamoring for alternative investments to meet their investment objectives, according to a report by Russell Investments.
Institutions participating in the survey on average had 22% of total fund assets allocated to alternative investments.
The firm’s 2012 Global Survey on Alternative Investing showed that diversification was cited as one of the top three reasons for using alternatives by 90% of respondents, while volatility management and low correlation to traditional investments was mentioned by 64%. Return potential was noted by 45% of respondents.
Furthermore, the majority of respondents indicated that allocations to alternatives would remain static or increase over the next one to three years. Thirty-two percent of respondents expected to increase their investment in hedge funds and private real estate, 28% in private infrastructure, 25% in private equity, 20% in commodities, and 12% in public real estate and public infrastructure.
“Today there is greater appetite for customized solutions in which investors can target specific risk/return outcomes, achieve more targeted strategy exposures, and be more opportunistic with their investments. This kind of fundamental shift in alternative investment implementation can provide a rich source of portfolio flexibility,” said Darren Spencer, Russell’s director of alternative investment consulting for North America.
Attention to alternative investments has been a familiar story over the last several years among institutional investors worldwide. In July 2010, for example, global research by Towers Watson showed that around half of all assets managed by the world’s largest alternative investment managers were managed on behalf of pension funds as they began to favor infrastructure and commodities.
According to the 2010 study, of the total allocated to alternatives, pension fund assets run by specialist infrastructure managers rose from 9% in 2008 to 12% in 2009 while commodities managers saw their allocation rise from 0.5% in 2008 to 2% in 2009. “Infrastructure and commodities managers have significantly increased their pension fund assets under management during the past year, as investors have become more comfortable with these asset classes and while others have continued to opportunistically add to their allocations,” said Carl Hess, global head of Investment at Towers Watson, in a statement. “However, investors should be very wary of the structure of some of these mandates with careful attention being paid to the ‘net of fees’ proposition, in particular for infrastructure.”