A primary concern of professional money managers, including those overseeing pension portfolios, is how to adequately source asset classes that reduce correlations to stocks and bonds. Alternatives are among the most compelling options.
It appears some pros agree. New research by Ocorian suggested that alternative fund managers believed pension managers will increasingly embrace alts in the months ahead. In fact, 87% of alternative fund managers polled by the research firm expected that pension managers will boost exposure to alternative investments over the next 18 months.
Adding to that ebullient outlook is the point that 72% of those queried by Ocorian believed that private banks will soon materially increase investments in alternative funds. Ocorian polled alt fund managers in Europe, the U.K., and the U.S.
“This is followed by six out of 10 (61%) who expect inflows into alternatives from corporates to increase over the next 18 months, with 34% expecting dramatic increases. Around a third (32%) predict levels will stay the same and 4% predict a slight fall,” noted the firm.
Good Time to Consider Alts
Ocorian research also indicated that managers of portfolios for insurance companies and sovereign wealth funds are among the institutional investors that will join their pension counterparts in increasing allocations to alts.
“Our research shows that alternative asset managers are feeling very optimistic about the next 18 months, with increasing levels of inflows across all sectors and in particular from pension funds, private banks and corporates who want to reap the benefits that alternatives can bring – helping to lower volatility, enhance returns and increase diversification,” said Paul Spendiff, head of business development, global funds, at Ocorian.
The firm’s survey doesn’t indicate exactly why professional investors are mulling increased exposure to alts, but 2022 may have been a motivating factor. Last year, stocks and bonds fell in unison, with the latter notching one of its worst annual showings in decades, as measured by aggregate bond indexes. Additionally, some of the asset classes with the best reputations as inflation fighters failed investors in 2022.
Those could be motivating factors behind the increased interest in alts. Likewise, institutional investors, such as insurance companies, pension plans, and sovereign wealth funds, have substantial amounts of capital to spread around. Not all of that cash can be directed to traditional asset classes. Due to the fact that these market participants also have long-term horizons, diversification is essential.
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