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Portfolio > Asset Managers

U.S. Alt Mutual Fund Asset Market Share to Double by 2015: Cerulli

By Emily Zulz

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U.S. alternative mutual fund assets are expected to double their share of total mutual fund assets over the next two years and continue to grow over the next 10 years, according to new research from Cerulli Associates.

“As of year-end 2013, alternative mutual fund assets made up just 3% of total mutual fund assets, and asset managers expect this to grow to 6% by 2015,” said Michele Giuditta, associate director at Cerulli, in a press release.

This research comes from Cerulli’s latest report, Alternative Products and Strategies 2014: Identifying Opportunities in a Dynamic Investment Landscape.

Giuditta added that advisors and individuals are expected to steadily grow their use of alternative mutual funds. According to Cerulli, survey respondents predicted the market share will continue to grow for a while, reaching 9% in five years and 14% in 10 years.

Cerulli points to several reasons why alternatives will play a greater role in investors’ portfolios.

The asset managers polled cited “multiple factors as being significant drivers of alternative investments. Requests from institutional investors (57%) and financial advisors (52%) remain significant drivers, while interest from distributors/platforms (55%) continues to gain importance as a key driver.”

Cerulli also points out why investors might look to alternative investments. According to Cerulli, alternative investments can play multiple roles within an investor’s portfolio: attractive risk-adjusted returns, current income, low correlation and low volatility with public equity and debt markets, and protection against inflation.

Additionally, many advisors and investors are transforming from a traditional asset allocation approach to a risk-based or objective-based approach. This means some investors and advisors are abandoning the view of alternatives as a separate asset class and instead are classifying them according to the investment’s role within the portfolio.

And, according to Cerulli’s research, “blurring asset class boundaries typically leads to higher allocations to alternatives, as institutions seek assets whose returns are less correlated with traditional long-only assets.”

Advisors say alternative allocations should range from 5% to 25% for individual investors, but average allocations in client portfolios are typically less than 5%, according to the survey.

“Current allocations are well below target levels, so there is an opportunity for investment managers to raise assets,” Giuditta said in the press release.

Research from another recent Cerulli survey suggested asset managers should devote resources to training and educating intermediaries and distributors on how alternative investments work and fit into investors’ overall portfolios.

“As asset managers and advisors continue their efforts to close the educational gap that currently exists with alternative products and strategies, Cerulli concurs that alternative assets’ share of total mutual fund assets will grow with solid momentum,” stated Cerulli in a press release.

Not only are alternative assets growing, but the number of managers offering alternative products is also increasing. According to Cerulli, traditional asset managers are diversifying their product roster to include alternative investments, while alternative managers are expanding strategies available to institutional investors and moving down market to diversify their client base and product lineup.

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