CIO Survey Shows Long-Only Active Equity Strategies Poised to Lose

(July 20, 2010) — According to a survey, chief investment officers overseeing US institutional portfolios are increasingly attracted to indexed equities and high-alpha alternatives, with BlackRock, Blackstone Group and Och-Ziff Capital Management “particularly well positioned” to benefit from those trends.

Goldman Sachs, Morgan Stanley, and JPMorgan Chase also received high marks from survey respondents when asked to rank the alternative managers they’d be most willing to commit additional capital toward.

The survey, conducted by Keefe, Bruyette & Woods, revealed that the pull toward “barbell” allocations will come at the expense of active long-only domestic equity strategies. Less than 60% of the 51 CIOs surveyed in May expect to lower their allocations to active long-only equities over the coming three years. More than 30% predict “no change” and less than 10% expected to up allocations.

Meanwhile, the survey found that the trend to passive strategies may be somewhat less than what many observers perceive, yet it remains generally positive. Respondents to the survey generally expect to increase their allocations to passive, alternative, and fixed income strategies – flows into passive equity strategies are expected to increase, with 37% of respondents predicting either a modest or significant increase and 19% expecting a decrease.

According to the research, alternative strategies in particular seem poised to generate new flows. More than 50% of respondents expect to increase their allocations to hedge fund strategies, while 40% of respondents expect allocations to private equity and/or real estate to increase.

KBW’s Chief Investment Officer (CIO) Survey included responses from CIOs and key decision makers at corporate and government pension plans, endowments, foundations, and investment managers.