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While the investment community continues to buzz about alternative investments, performance concerns may be tempering that enthusiasm, according to new research.

The buzz surrounding alternatives remains strong. In Natixis Global Asset Management’s 2012 U.S. Advisor Study, roughly half (49%) of the 163 U.S. advisors who responded (representing approximately $670 billion in assets under management) said they regularly employ alternative investing strategies across their client base. Within that segment, 79% said they do so to improve diversification, 68% to reduce risk, 51% to enhance returns, and 42% to dampen volatility.

That enthusiasm is doused somewhat by results of the fourth annual U.S. alternative investments survey by Morningstar and Barron’s. Overall, financial institutions reported a retreat in interest and investment in alternatives in 2011 after three consecutive years of growth. According to Morningstar and Barron’s, the $23.2 billion in alternative mutual funds inflows in 2011 represented a drop of $1.8 billion from 2010. What’s more, 26% of the institutions surveyed indicated they plan to allocate more than a quarter of their portfolios to alternative investments, down from 37% in the previous survey.

Still, a majority of advisors (64%) indicated in the Natixis survey that they are apt to employ alternative investment strategies for mass-market clients with $200,000 to $300,000 in investable assets.

What kinds of alternative investments are they most apt to use? According to Morningstar and Barron’s, institutions identified long/short equity (or debt) and private equity/venture capital as the top two strategies for increased allocation, followed by managed futures. For the second consecutive year, advisors cited managed futures as the asset to which they were most likely to increase their exposure. 

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