Seventy-six percent now consider the use of alternative investments essential to diversify portfolio risk (76%), according to a new study of 151 U.S.-based institutional investors by Natixis Global Asset Management (NGAM). Seventy-three percent say it is necessary to invest in alternatives in order to outperform the broad market.
The majority (88%) of the respondents who invest in alternative products such as hedge funds, private equity and alternative mutual funds are pleased with the performance of their investments. When asked what they would do if they had to make the choice all over again, 93% say they would increase their allocation to alternatives or invest the same amount; just 7% claim they would decrease their allocation.
The majority (57%) of institutional investors in the U.S. holding alternative assets have done so for eight years or more, with 36% of those reporting they have been investing in alternative strategies for 15 years or more. One-third (33%) of respondents report that their risk tolerance is lower today than five years ago, compared with 26% who say their risk tolerance is higher. Nearly two-thirds (65%) of U.S. institutional investors agree that reducing risk means accepting lower returns. Approximately one in five (22%) say they cannot effectively manage risk in their portfolio because of unpredictable market volatility.