In the current economic climate, institutional investors are cautious and want alternative investment options, says a survey by Russell Investments.
The vast majority (90%) cited diversity as their main reason for using alternatives. Over half (64%) listed volatility and low correlation to traditional investments, and 45% say it’s about return potential.
“In an environment characterized by low returns, economic uncertainty and market volatility, alternatives are a critical component of a diversified, multi-asset portfolio,” says Julia Cormier, director, alternative investments at Russell Investments.
Institutions are structuring portfolios to manage risk as volatility continues, she adds. One-third (32%) expect to increase their investments in hedge funds and private real estate. Others are looking at private infrastructure (28%), private equity (25%), commodities (20%), and public real estate and infrastructure (12%)
Other key survey findings:
- 63% of respondents are obtaining customized hedge fund solutions to complement existing exposures, pursue niche opportunities and access strategy-specific expertise;
- North American and European investors expect small to modest decreases in their current private equity (PE) commitments over the next one to three years;
- 51% of those who hold real estate use listed Real Estate Investment Trusts (REITS) and unlisted private real estate;
- 38% say real estate funds will continue to be an implementation choice in the next one to three years;
- Long futures exposure is the most popular type of investment for commodities (63%), with private equity (44%) and hedge funds (28%) trailing;
- 36% say additional education about alternatives is needed within their organizations.