The survey also said experienced investors are moving away from first-generation alternative investment strategies because returns may not be sustainable due to the flood of new money flowing into those strategies, Mr. Garibaldi said.
For instance, experienced investors are steering their investment dollars out of multistrategy and hedge funds of funds.
“Endowments and foundations, which are second- and third-generation hedge fund investors, are looking for the next idea like international and opportunistic strategies that take advantage of market dislocations,” Mr. Garibaldi said.
Endowments and foundations have invested in hedge funds the longest of institutional investors. Thirty percent of endowments and foundations already invest in absolute return and hedge funds, compared to 13% of corporate pension plans and 16% of public pension plans, the JPMorgan survey revealed.
Among alternative investment strategies, the 9.3% allocation to the absolute return/hedge fund category is the highest of any alternative investment strategy. JPMorgan officials estimate that absolute return and hedge fund strategies will account for about 40% of net inflows into alternative investments through 2010. The new money is expected from first-time investors and increased allocations by existing investors.
Not all investors are attracted to the same alternative sub-asset classes. While endowments and foundations have larger allocations to hedge funds than corporate and public pension plans, public pension plans have the largest allocations to real estate.
Where the money will be coming from to fund new allocations depends on the type of institution. Corporate pension plans expect to cut their stock allocations. Endowment and foundations are chipping away at both their stock and bond allocations, while public pension plans are keeping their bond allocations about the same but will be trimming their equity portfolios.
By 2010, corporate pension plans expect to increase their fixed-income allocation by three percentage points to 33% as a way to reduce volatility in their funding levels, while decreasing equities by five percentage points to 52%, the JPMorgan survey revealed.
Public pension plans and endowments and foundations have longer-term views and are not currently affected by regulatory changes. These investors plan to keep their fixed-income allocations relatively constant, and decrease equities and alternative investments.
Public pension plans are keeping their fixed-income allocations the same at 27%, while decreasing equities one percentage point to 56%. Endowments and foundations plan to reduce stocks to 47% from 51%, while bonds will be trimmed a single percentage point to 18%.
Overall, survey respondents stated they were shifting more assets to alternative investments for greater diversification and to increase returns. Some investors are increasing their allocations to alternative investments in a bid to seek opportunity in the current market turmoil.
Overall, 94% of all investors stated that real estate is meeting performance expectations compared to 92% for absolute-return strategies, 88% for private equity and 87% for hedge funds.
Contact Arleen Jacobius at [email protected]