Girding for End of Bull Run, Investors Look to Alts

Although 63% of investors did not yet view ESG factors as a significant part of their overall investment philosophy, 51% said they expected to increase their allocations to ESG or impact-related funds in 2018 — evidence of the sector’s growing popularity, Context said.

In contrast, just 11% of allocators expected to add cryptocurrencies to their investment portfolios.

According to the survey, uncertainty surrounds the long-term investment merits of cryptocurrencies as 71% of respondents said they had no plans to invest in crypto-related funds and 18% were still undecided.

At the same time, investors expressed confusion and skepticism about the viability of crypto as an asset class: 27% called it a fraud, 27% said it was legitimate and the rest said they did not know.

To be sure, virtual currencies have attracted wide-ranging attention in recent months, much of it negative:

• The Federal Trade Commission recently shut down promoters of deceptive cryptocurrency schemes
• The Massachusetts securities regulator ordered five firms to halt the sale and promotion of unregistered securities in the form of virtual coin offerings
• Lawmakers and cryptocurrency experts agree that regulators need to determine when a token is a commodity or a security
• Earlier this month, an advisor and a quant discussed the future of cryptocurrencies in client portfolios.

Three in five investors in the Context survey said they preferred to allocate to emerging managers — defined as those with shorter than a three-year track record and/or less than $300 million in assets under management — while three-quarters said they looked for managers with at least three years of performance history.

The survey also revealed that the rise of the quants has slowed. Seventy-one percent of allocators said they had not replaced any of their hedge fund exposure with algorithmic or quantitative smart beta strategies.

“While current fiscal policy and robust economic growth remain a tailwind for risk assets, the recent uptick in market volatility, alongside the long-term shift in monetary policy, have created real reasons for concern among investors about their traditional market exposure,” Context’s chief investment officer, John Culbertson, said in the statement.

“The alternative asset management industry is well-positioned in the middle of these forces, providing institutional allocators and family offices with access to investment strategies that offer both diversification from traditional risk assets and the promise of a differentiated return profile.”