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Alternatives to hit 14% of mutual fund assets

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Alternative mutual fund assets are increasingly on the radar screen of asset managers, both those who handle institutional and retail accounts. As LifeHealthPro reported last March, between eight and 10 life insurers say they are actively considering increasing their allocation to alternative strategies as they look for sources of additional yield.

The latest evidence of the march to alternatives comes from Cerulli Associates, which reveals in an October 2013 report that alternative mutual funds will comprise close to 14 percent of all mutual fund assets in the next 10 years.

“Since the financial crisis in 2008, institutions and advisors have been under pressure to increase returns while keeping risk unchanged, says Cerulli Associate Director Michele Giuditta. “As a result, alternative products are attracting interest from retail and institutional investors, as both are increasingly looking for portfolio diversification, enhanced returns and risk management.”

Cerulli’s report, “Alternative Products and Strategies 2013: Identifying Enduring Opportunities in Complex Markets,” shows that 72 percent of asset managers have built alternative asset business internally with an existing portfolio management team. Smaller percentages of asset managers have:

  • Hired sub-advisors (33 percent);
  • Built alternative asset business internally with an acquired portfolio management team (31 percent); or
  • Acquired specialty alternative shop(s) (19 percent).

“Not every asset manager looking to make a play in the alternative asset management space has the portfolio management expertise to build internally,” the report states. “As a result, some firms choose to lift out experienced portfolio management teams or acquire specialty shops to bolster their alternative product line-up.”

The research notes also that more than 50 percent of surveyed asset managers state that alternative investments are either more important than other initiatives or the most important initiative within both retail and institutional channels. And more than two-thirds of managers state the same for high net worth clients.

Alternatives are the most important initiative for 35 percent (retail), 42 percent (institutional) and 32 percent (high net worth), respectively, across the aforementioned channels.