More asset owners worldwide turning to alternatives – CoreData survey

A broad survey of institutional investors found that 40% of the universe will increase their allocations to alternative investment strategies over the next three to five years, said CoreData Research in a report on its findings released Tuesday.

The research firm surveyed 459 asset owners in North America, Europe and Asia in June and July and found that European investors have the largest appetite for alternatives with 46% of those surveyed responding that they intend to ramp up their commitments in this area.

In contrast, 30% of Asia-based asset owners said they will increase their exposure to strategies including private equity, private credit and real estate over the three- to five-year period vs. 35% of North American institutional investors.

"Our findings indicate that institutional investors have looked to weather the COVID-19 storm by seeking shelter in alternatives, which can enhance diversification and risk-adjusted returns," said Andrew Inwood, founder and principal of CoreData Research, in the report.

Allocations to alternative investment strategies in institutional portfolios overall now average 26% of plan assets compared with 24% in 2019, CoreData's survey data showed.

In terms of popularity, 52% of all survey respondents said they plan to increase commitments to private credit; 50% will raise their allocation to private equity; infrastructure, 49%; and real estate, 39%.

CoreData's survey results revealed that 90% of asset owners said diversification was the primary reason for investing in alternative strategies. Other considerations include prospective higher long-term returns (44%); risk management (43%); and the illiquidity premium provided by some alternative strategies (43%).

The top concern regarding increased allocations to alternative investment strategies expressed by 80% of institutional investors surveyed was the belief that alternative asset valuations are too high, the CoreData report showed.

High fees were a concern for 70% of survey respondents; complexity concerned 61% of those surveyed; and 39% said they are worried about the lack of transparency for alternative investments.

"These concerns could put a brake on the adoption of alternatives. The ability of asset managers to provide solutions to these challenges is therefore key to increased uptake," said Mr. Inwood. "While the current crisis has increased the appeal of these non-correlated assets, the alternatives growth story still has a long way to run."