Forty-eight percent of asset owners, investment managers and hedge fund managers surveyed by the Alternative Investment Management Association and State Street Corp. said decreased liquidity will be a long-term issue in securities markets.
Also, 30% of survey respondents said their investment portfolios have been less liquid over the past three years, according to a report by the AIMA and State Street, “Let's Talk Liquidity: Opportunities in a New Market Environment.”
Other survey results regarding investment portfolios were:
- 34% of asset owners and 29% of managers and hedge funds will consider increasing their high-yield allocations for higher returns;
- 61% of hedge funds will increase the use of illiquid investments for higher returns, vs. 50% of asset owners and 37% of managers; and
- 44% of all respondents will increase the size of their cash allocations against future liabilities and redemptions.
“While some institutional asset owners and managers plan to place increased emphasis on liquid assets, others will opportunistically allocate more to fast-growing illiquid asset classes,” the report said. Also, when asked whether survey respondents would replace banks and other traditional market makers as liquidity providers, 43% of hedge funds said they would vs. 35% of asset owners and 16% of money managers.
In addition, 49% of all respondents said they think the use of non-bank institutions to provide liquidity will grow, and 42% believe the use of hedge funds as liquidity providers will grow.
Paul Fleming, executive vice president, global head of hedge fund asset servicing at State Street, Boston, said (in an interview that the move away from intermediary banks has created a “new reality” for other potential liquidity providers. “This will create new opportunities for other providers, including smaller businesses.”
The report is based on a global survey of 150 asset owners, 100 money managers and 50 hedge funds in June and July.
The full report is on State Street's website.