BOSTON--(BUSINESS WIRE)--Three in four U.S. institutional investors (74%) have changed their approach to risk management over the past five years and now consider the use of alternative investments essential to diversify portfolio risk (76%), according to a new study of 151 U.S.-based institutional investors by Natixis Global Asset Management (NGAM), the 13th largest asset manager in the world. The research was released today by NGAM’s Durable Portfolio Construction Research Center.
According to the survey, most U.S. institutional investors say that traditional diversification and portfolio construction techniques need to be replaced (64%) and no longer consider conventional 60/40 portfolios to be the best way to pursue returns (72%). Approximately two-thirds believe that increasing allocations to non-correlated assets (64%) and increasing the use of liquid alternatives (68%) are effective strategies for managing portfolio risk.
“Years of market instability have U.S. institutional investors on edge,” said John T. Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. “In their view, markets are driven more by economic and political events than by fundamentals. As a result, decisions are often made for defensive reasons. What U.S. institutional investors are looking for now are better responses to manage volatility and risk.”
European market risk and fiscal shortfalls, possible regulatory changes causing investors to lose sleep
Most U.S. institutional investors (68%) cite Europe’s financial woes as one of the three most likely sources of market volatility in the next two years. Nearly half (47%) say Europe’s woes are one of the top three issues keeping them awake at night, followed by 30% who selected regulatory uncertainty.
Asked about the highest threat to meeting institutional investment objectives, 40% of the respondents cited global equity market risk, with global fiscal imbalances ranked second (36%).
Investors also are concerned about impacts of anticipated regulatory changes. A substantial majority of U.S. institutional investors (85%) believe there will be a tightening of regulatory restrictions on financial institutions and capital markets participants, regardless of the outcome of the U.S. elections.
Three in four (74%) believe U.S. financial institutions will have limits placed on their market-making abilities, resulting in their being less competitive. A majority (64%) believe mark-to-market regulatory requirements prevent investors from being able to capitalize on market opportunities.
If I had to do it all over again, I would invest in alternatives
Of the respondents who invest in alternative investment products such as hedge funds, private equity and alternative mutual funds, 88% are pleased with the performance of their investments.
When asked what they would do if they had to make the choice all over again, 93% said they would increase their allocation to alternatives or invest the same amount, and just 7% said they would decrease their allocation.
Attention to risk, use of alternatives
When asked whether allocations to the following categories of alternative investments were above, below or on target, institutional investors said:
| Strategy | Above Target | On Target | Below Target | |||||||||
| Private equity | 26% | 54% | 20% | |||||||||
| Single manager hedge funds | 25% | 55% | 20% | |||||||||
| Funds of hedge funds | 23% | 61% | 16% | |||||||||
| Real estate | 19% | 57% | 24% | |||||||||
| Global macro funds | 18% | 62% | 20% | |||||||||
| Commodities | 18% | 64% | 18% | |||||||||
| Multi-asset absolute return funds | 17% | 73% | 10% | |||||||||
| Venture capital | 11% | 65% | 24% | |||||||||
| Infrastructure | 6% | 78% | 16% |
“Investors are right to reassess their methods of managing and diversifying risk,” NGAM’s Hailer said. “Given the big, abrupt market swings we’ve seen in the last few years, making risk a top priority is a sensible adjustment. The same is true of alternative investments, since they help investors assemble durable portfolios that can perform well whether markets move up or down.”
Methodology
The online survey of 151 U.S. institutional investors, which manage assets on behalf of corporate and public pension funds, endowments and foundations, insurance reserves/liabilities and sovereign wealth funds, was taken in June and July of 2012. The confidence interval is plus or minus 4.4%. The median asset level managed by U.S.-based respondents was approximately $30 billion. A copy of the global survey highlights is available at www.ngam.natixis.com/pressroom.
The U.S. study is part of a larger global survey of 482 institutional investors in 13 countries in Europe, Asia and the Middle East, as well as the U.K.
About Natixis Global Asset Management, S.A.
Natixis Global Asset Management, S.A. is one of the 15 largest asset managers in the world based on assets under management.1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates’ products around the world. Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies.
Headquartered in Paris and Boston, Natixis Global Asset Management, S.A. has assets under management totaling $711 billion (€560 billion) as of June 30, 2012.2 Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A.’s affiliated investment management firms and distribution and service groups include: Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Caspian Private Equity; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; Natixis Asset Management; Natixis Multimanager; Ossiam; Reich & Tang Asset Management; Snyder Capital Management; and Vaughan Nelson Investment Management.
1 Cerulli Quantitative Update: Global Markets 2012 ranked Natixis Global Asset Management, S.A. as the 13th largest asset manager in the world based on assets under management as of December 31, 2011.
2 Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part 1.
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