Institutions Broadening Use of Alternatives

The May 2013 issue of “The Cerulli Edge-U.S. Asset Management Edition” says institutions are overhauling portfolio allocations to address performance gaps and volatility, embracing the use of alternative assets and increasing investment overseas. “Institutions’ investment portfolios have grown more complicated as asset classes have expanded and as capital markets continue to evolve,” said Michele Giuditta, associate director at Cerulli. “Post-2008, institutions have reconsidered how their portfolios are constructed and allocated. Institutional investors continue to seek more consistent and higher returns, improved liquidity and transparency, lower volatility, and better control of risk.”  

Advisers and investors have made adjustments in investment strategy and portfolio construction, but they continue to rely on time-tested wisdom and techniques, with moderate shifts in portfolio allocation expected in the coming years.  

"Product vehicles and structures used by institutions have broadened beyond separate accounts and mutual funds to include more exchange-traded funds (ETFs), collective trust funds (CTFs), limited partnerships, and funds of funds," explained Giuditta.   

"Institutional investors are gradually shifting assets away from traditional long-only equities and fixed income, and including more alternative assets and global holdings to diversify their portfolios," Giuditta continued. "As more institutions increase their exposure to alternative assets, investors are becoming more concerned about evaluating risk, performance and fees."   

Cerulli anticipates that as alternatives play a bigger role within institutions' portfolios, and are a key driver of manager searches, asset managers with alternative products will be better positioned to win new mandates. Outsourced chief investment officer providers with expertise in alternatives will continue to see more opportunities.