Institutional Investors Stick with Alternative Investments

JPMorgan research found that institutions are keeping alternative investment allocations intact.

A recent survey by JPMorgan Asset Management, which examined the investment strategies and practices of some of the nation’s largest institutional investors, found there has been no overall pullback from alternative investments even during recent challenging market conditions.

Average allocations to alternatives exceed 18% and are expected to exceed 22% by 2010, the study found, according to a press release. Respondents said a 20% to 30% allocation to alternatives is “about right,” although among endowments and foundations, more than half think the allocation should be higher. “This group of investors is clearly leading the way in alternative investing with allocations accounting for over a third of portfolio assets by 2010,” the release said.

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According to JPMorgan, with recent and anticipated regulatory and accounting changes, corporate plans are focused on controlling funded status volatility by increasing fixed income allocations and significantly extending durations. These plans have the lowest average total alternative allocations (13%), anticipated to grow to 15% by 2010.

Public funds are currently more active in alternatives than their corporate plans. Their participation rate with respect to absolute return/hedge funds has increased approximately four-fold (to 43% of plans invested) since the survey in 2004. Public funds also show strong growth in private equity and green/sustainable investing.

The survey found the need to enhance and diversify returns drives growth. Growth in average allocations is expected across all major alternative asset classes, with absolute return/hedge funds and private equity growing the fastest.

Expected growth based on survey findings includes:

  • Hedge funds/absolute return: These strategies will account for approximately 40% of net inflows into alternatives through 2010.
  • Private equity: Growth will be strong, led by 62% of current investors planning to increase allocations, the highest percentage across all alternative asset classes.
  • Real assets/real estate: This mainstream portfolio component will experience more modest growth.

Investors are emphasizing diversification within their alternative portfolios among various established and new types of alternative strategies, as well as across geographic regions. JPMorgan said it expects to see real assets/infrastructure’s relatively small investor base more than double over the next three years.

The company said the green/sustainable asset class showed surprising strength and is of particular interest to public funds. Among all alternative asset classes, real estate features the most pronounced preference for non-U.S. assets.

The survey was conducted for JPMorgan Asset Management by Greenwich Associates, primarily via confidential phone interviews with 191 major institutions (76 Corporate Plans, 50 Public Funds, 56 Endowments and Foundations and 9 Taft Hartley plans) active in alternative investments during the first quarter of 2008.


A copy of the summary report is availabe at www.jpmorgan.com/insight.

Prudential Guide Helps with Plan Enrollment Decisions

Prudential Financial, Inc., debuted a newly designed personalized enrollment guide that delivers simplified, reader-friendly content for participants in defined contribution plans who are transitioning to Prudential Retirement or for new hires joining existing plans.

According to a Prudential announcement, its Retirement Workbook is structured by plan type for participants in 401(k), 403(b), 457, 401(a), and multi-employer plans. The format of the Retirement Workbook introduces participants to all aspects of their retirement plan, with the following features:

  • personalized, targeted information based on the options available in their plan;
  • retirement income projections to ease participants’ retirement planning decisions;
  • support for “auto-plan solutions’ such as automatic enrollment, contribution accelerator, and asset allocation tools, if these options are available as part of their plan.

The workbook also allows sponsors to create a custom look and feel, including tailored cover designs, and is available in Spanish upon request, the announcement said. The workbook leads readers to Prudential’s Online Retirement Center where they can access the Retirement Income Calculator and encourages access to Prudential Retirement’s education and planning Web site (PREP) to take advantage of a variety of financial tools.


More information is available at www.prudential.com.

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