Entitled Market Pulse—Alternative Assets, the survey indicates that after an initial “pause” and re-assessment of portfolio strategies following the depths of the recent financial crisis, investors are resuming their steady march from the traditional to the alternative. The trend is most pronounced among public pension plans, where alternative allocations are set to increase from 14% to 21% of assets over the next two to three years, according to a press release.
In addition, alternatives continue to dominate the portfolios of larger endowments and foundations (with $1 billion or more in assets) while allocations among smaller E&Fs (under $1 billion) are well above those of corporate and public plans of similar size, and growing at a healthy pace. Corporate plans, driven by the need to control the volatility of funded status, are increasing fixed income allocations (and their duration) while expanding alternatives (though at a slower rate than their public fund counterparts).
Other key findings, according to the press release, include:
- Asia/Pacific is viewed by 56% of respondents as the region of greatest opportunity for alternative investments over the next three to five years. Private equity and infrastructure allocations to the region are expected to see notable growth over the next 12 months, albeit from a small base: the Asia/Pacific share of private equity portfolios is anticipated to increase from 10% to 15%, while the region’s share of infrastructure portfolios is expected to increase from 6% to 12% – over the next 12 months.
- While liquidity is a primary concern, it has also created opportunity; among those investing or planning to invest in private equity, almost 40% have or intend to invest in the secondary market.
- Investors are adopting a more risk factor-based view of hedge funds within the portfolio context—viewing them, not as a separate “asset class” but rather as a less constrained, more actively managed and less liquid extension of their traditional debt and equity allocations.
- Hedge funds and real estate are viewed as the alternative asset classes offering the greatest investment opportunity over the next three to five years (they each received 24% of respondents’ votes, with private equity close behind at 21%).
The J.P. Morgan Asset Management Market Pulse—Alternative Assets survey encompasses the views of 349 North American investors from 325 institutions including corporate plans, public funds, endowments, foundations and others. The survey was conducted online in March-April 2010.