Over three-quarters of institutional investors in the United States consider alternative investments “essential” to a diversified portfolio, a survey by Natixis Global Asset Management found. The survey, released Tuesday, found 74% of investors have changed their approach to risk management over the past five years.
Natixis surveyed 151 institutional investors based in the United States and found 64% believe traditional methods of diversifying portfolios need to be replaced. Seventy-two percent think the common 60/40 mix in portfolios is no longer an efficient way to achieve returns. Moreover, 68% of investors believe increasing their allocation to liquid alternatives or noncorrelated assets (64%) are effective ways to manage risk.
“Years of market instability have U.S. institutional investors on edge,” John Hailer, CEO of Natixis Global Asset Management in the Americas and Asia, said in a statement. “In their view, markets are driven more by economic and political events than by fundamentals. As a result, decisions are often made for defensive reasons.”
Among investors who have already invested in alternatives, 88% are happy with their performance.
For the most part, institutional investors are confident they are on target with their allocation to specific categories of alternatives. Over half said they were on target in their allocation to private equity and 65% said they were on target in venture capital. About one-quarter said they were above target on their allocation to single-manager hedge funds or funds of hedge funds, but most said they were on target in those categories. Sixty-two percent of investors said they were on target in global macro fund allocation and 64% said the same about commodities.
Financial problems in Europe are clearly on the top of institutional investors’ minds. Sixty-eight percent of respondents said financial problems in Europe will be one of the three most likely sources of market volatility over the next two years. Almost half said it’s one of the top three issues keeping them up at night.