For the first time since Morningstar
began its alternative investment survey, institutions are beginning to use alternative mutual funds to replace some hedge fund investments. Far fewer respondents chose not to allocate investments towards alternatives than in 2008, 4 percent from 17 percent to be exact, writes Morningstar's alternative investments analyst Josh Charney.
The 2012 survey was good news for mutual funds, as institutions are favoring mutual funds for their liquidity over hedge funds that have long-short equity strategies. Charney reported that 45.3 percent of institutions priorly use mutual funds to access long-short equity strategies compared to 26 percent that use a hedge fund.
The percentage of institutional investors willing to allocate more than 40 percent to alternatives in the next five years increased slightly to 20 percent from 20 percent compared to 17 percent last year.
Charney chalks this up to investing fears stemming from the 2008 financial crisis:
When asked to pick three top drivers to invest in alternatives, advisors cited the need to offer clients investments they wouldn't find on their own (29%). The search for better diversification is likely driven by the 2007-09 financial crisis, when investors who simply allocated to various long-only equity investments got burned.
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