U.S. institutional investors surveyed last year by Greenwich Associates expected their investment portfolios to outperform the market by an average 121 basis points annually over the next five years.
But Greenwich Associates consultants note in their report on the survey that adding more than 100 basis points of alpha every year is highly unlikely.
The higher expectations come as institutions are diversifying their portfolios. Fifty-four percent of U.S. pension plans in the survey were invested in private equity in 2007, up from 48% the year before; 44% were invested in hedge funds, up from 36% in 2006; 12% were in commodities, up from 10%; and 7% were in global tactical asset allocation, up from 6%.
The study showed only 8% were invested in U.S. equity 130/30 strategies and 5% were invested in international equity 130/30 strategies. Greenwich Associates did not collect data for 130/30 strategies in its 2006 study.
Interviews with officials at 1,078 institutions were conducted between July and October.