Investors continue to flock to the alternative investment space, bringing about changes in the sector that have major implications for how managers run their businesses and the infrastructure they need to support their investment acumen, according to a survey of 70 institutional investors released Tuesday by SEI.

Today, 80% of institutional investors globally allocate to at least one asset class within the alternatives universe, SEI reported, citing findings by alternatives data provider Preqin with which it prepared the report.

However, as asset classes converge, investment vehicles evolve and business models change, investors and managers alike are uncertain how to best take advantage of this positive outlook, according to the report.

The survey confirmed that operational considerations were becoming more prominent even as manager evaluation and due diligence focused on the investment team and its process remained critical.

According to the report, growing institutional demand has been accompanied by increasingly diverse and complicated portfolio holdings for many investors, consisting of stakes in a mix of limited partnerships, co-investments and direct holdings, which bring oversight and administrative challenges of their own.

SEI noted that some big investors, such as CalPERS, were significantly reducing the number of alternative managers with which they partner as they grapple with the complexities of running their investments and strive to reduce overall portfolio expenses.

Nevertheless, it said, “the story of alternatives is still about growth — where investors are receiving record distributions and planning increased allocations to both funds and direct investments even as they seek to rebalance across asset classes.”

According to the report, institutional investors find sector specialists very attractive, but also acknowledge the numerous advantages of working with diversified managers. Limited partnerships continue to be the chief way of gaining exposure to alternatives, but customized structures are also becoming more common.

The trend toward diverse and customized fund structures has operational implications for general partners at a time when managers are dealing with a variety of other demands from their investors, the survey showed.

Many investors, for example, rankle at the low level of transparency available to them. SEI said this was in stark contrast to its survey of general partners released in September, which showed that most managers felt current levels of transparency and access were sufficient.

This disconnect was glaring when it came to fees and performance attribution. While 67% of managers surveyed considered existing levels of transparency surrounding operating expenses sufficient, only 25% of investors agreed.

In addition, some 90% of investors said it was important or extremely important that they have the opportunity to negotiate fees, yet this happened much more often with larger investors than with those at lower asset levels. Seventy-three percent of investors with more than $25 billion of assets reported success in negotiating fees, compared with just 29% of those with less than $1 billion of assets.

“As the industry becomes more sophisticated and complex, the winners will be those managers who can close the gaps between investors’ expectations and current reality by bolstering their operational capabilities, while also supporting their portfolio management expertise with a streamlined and technologically supported investor experience,” Jim Cass, senior vice president of SEI’s investment manager services division, said in a statement.

— Check out 6 Hedge Fund Trends to Watch in 2018 on ThinkAdvisor.