Institutional investors are increasingly turning to alternative assets to diversify as they navigate an environment characterized by low yields, geopolitical concerns and a growing set of investment risks, according to Allianz Global Investors’ annual Risk Monitor survey.
Seventy percent invest in alternative investment classes. Among this group, 31% say it is to diversify their portfolio. Other reasons they gave: to establish a low correlation with other strategies (19%), to seek higher returns than conventional debt or equity investments offer (17%) and to reduce portfolio volatility (17%).
However, 48% said they would invest more in alternatives if they felt more confident about measuring the risk associated with these asset classes. This is particularly true for sovereign wealth funds (66%) and banks (55%), but less so for pension funds (44%), insurance companies (48%), family offices (47%) and endowments and foundations (38%). Sixty-two percent say they need better tools to manage the risks associated with these asset classes.
To achieve particular goals, 30% of institutional investors turn to real estate equity and infrastructure equity. Another 24% use relative value/arbitrage strategies. When seeking higher returns, these investors use private corporate equity (49%), event-driven strategies (30%) and infrastructure equity (27%).
For risk management, institutional investors’ favorite alternative asset classes are relative value/arbitrage strategies (24%), macro strategies (20%), trading strategies (16%) and infrastructure debt (14%).
Allianz’s findings are based on interviews that CoreData Research conducted in April and May with 755 institutional investors across North America, Europe and Asia-Pacific representing $34.2 trillion in assets under management.
The full report can be viewed here.
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