A recent survey of investment consultants by global analytics firm Cerulli Associates confirms that U.S. institutional investors across client segments have increased their exposure to alternative assets since 2007. Cerulli’s research indicates as institutional investors increasingly take an objective-based approach to portfolio construction, hedging and risk management allocations will grow in importance within institutions’ portfolios.
Investment consultants polled by Cerulli expect DB pensions will increase allocations to hedge funds (65% of consultants), other private investments (56% of consultants) and private equity and venture capital (50% of consultants) during the next 12 months. In addition, they anticipate nonprofits will increase their proportion of alternative investments during the next year, specifically allocations to other private investments (75% of consultants), private equity and venture capital (58% of consultants), and hedge funds (46% of consultants).
“The 2008 financial crisis left institutions in search of more consistent portfolio returns across different economic environments,” says Michele Giuditta, associate director at the Boston-based Cerulli. “There is new thinking around portfolio construction, leading institutions to reevaluate their models for governance, asset allocation, and implementation.”
The report explains, “One challenge of a risk-based allocation is the lack of consistency among institutions’ classification methods. As this shift continues, traditional asset classes and style boxes are increasingly irrelevant. Blurring asset class boundaries typically leads to higher allocations to alternatives, as institutions seek assets whose returns are less correlated with domestic equities.”
More information about the research, including how to purchase a copy, can be found here.