Close to half of global institutional investors are planning to increase their allocations to alternatives amid coronavirus-related volatility, according to a new survey by CoreData Research Ltd.
The survey, which polled more than 450 investors, found 26 per cent of respondents’ portfolios are made up of alternative assets, up slightly from 24 per cent in 2019. North American investors saw the biggest increase, from 23 per cent in 2019 to 27 per cent this year.
Diversification, cited by 90 per cent of respondents, was the top reason for allocating to alternatives, followed by the prospect of higher long-term returns (44 per cent), risk management (43 per cent) and the illiquidity premium (43 per cent).
“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, in a press release.
As for specific asset classes, 52 per cent of survey respondents said they intend to increase their allocations to private debt over the next three to five years, followed by private equity (50 per cent). However, 37 per cent said they aren’t looking to up their exposure to alternatives. When asked about their concerns for the asset class, 80 per cent of investors cited high valuations, followed by fees (71 per cent), complexity (61 per cent) and lack of transparency (39 per cent).
“These concerns could put a brake on the adoption of alternatives,” said Inwood. “The ability of asset managers to provide solutions to these challenges is therefore key to increased uptake. While the current crisis has increased the appeal of these non-correlated assets, the alternatives growth story still has a long way to run.”