Alternatives gaining favour among investors

Institutional investors will increasingly turn to alternatives as they seek to boost returns and reduce risk, an AMP Capital survey finds.

Fund managers are more likely to reallocate assets to non-market driven strategies favouring alternatives as they seek to boost returns and reduce volatility and risk, said Australian fund manager AMP Capital, announcing the results of its latest institutional investor survey.

AMP sought the responses of 56 global institutional investors which collectively manage $1.9 trillion to gain insights into their planned strategies for the next 12 months.

“The largest proportion of respondents feel increasing the use of non-market driven strategies, such as absolute-return and inflation-plus instruments would be especially effective ways to increase returns (48 percent) and decrease portfolio risk (52 percent) during the next 12 months,” AMP said.

Of those surveyed, 35 percent said they would increase their allocation to alternative assets followed by 22 percent who said they would increase their allocation to fixed income and 19 percent to equities. However, regardless of which asset class fund managers will shift their allocations to, 42 percent said they expected their equities portfolios to decrease in size.

“In what is still a tepid recovery from the post-Lehman crisis, many fund managers are eager to reduce risk especially as their plans approach fully-funded status,” AMP Capital chief executive international and head of global clients, Anthony Fasso, said. “This led them to step away from publicly-traded markets and turn to alternative investments and liability-driven investment strategies as a means to shelter their plans from changes in asset value and interest rates,” he added.

Despite the “marked enthusiasm for alternatives,” institutional investors do not expect a seismic shift in asset allocations in the next year since a period of 12 months is too short to initiate and implement significant asset allocation changes.

Forty-one percent of those surveyed said their pension or retirement plans would need three to four months to decide a change in asset allocation and develop a strategy to implement that change; while 35 percent said it would take their schemes six or more months to do so. Only 15 percent of respondents said it would take their plans only one to two months.

As a result, many respondents said they would like to see a decision-making process regarding changes in asset allocation that is quicker and more independent from plans’ trustees and boards.

Established in 1988, AMP Capital is a global infrastructure manager that as of June 30, 2014 had more than A$144 billion in funds under management. Since its inception, the Sydney-based firm has made more than 100 infrastructure equity and debt investments globally.

It manages unlisted and listed infrastructure investments in Asia, Europe, North America, Australia and New Zealand.