Alternatives: America’s Most Wanted

Investors will be dumping underperforming traditional managers and embracing the alternative this year, consultants have said.

(March 21, 2012)  —  Alternative asset classes are to be the most sought after by institutional investors in the United States this year, knocking traditional asset classes out of the top five most wanted for the first time, a survey of consultants has found.

Private equity, emerging market debt, hedge funds, real estate and commodities are to be the asset classes seeing the most investor searches in 2012, according to a survey of consultants by Casey Quirk and eVestment Alliance.

In total, these alternatives are to make up 20% of all fund manager searches, according to consulting firms responsible for advising investors with over $9.7 trillion in assets.

Benjamin Olmstead, Vice President of New Product Innovation at eVestment Alliance, said:  “As hedge funds continue to dominate news headlines, we are not surprised that many of the significant findings from this year’s survey were focused on alternative investments.”

Last year, the top five expected manager searches included US and global equities, despite the list being topped by single manager and fund of hedge funds.

Previously, global equities were the most searched asset class.

Casey Quirk and eVestment Alliance said the shift towards these previously-dubbed ‘alternatives’ had meant an actual change in portfolio construction with a greater allocation to this sector overall.

The survey said alternatives had become a centrepiece for active asset management as investors were increasingly concerned with the outcomes of their portfolio allocation rather than just its make-up.

‘Traditional’ asset managers have more to fear in 2012 than fewer mandates, according to the survey.  Managers that have been ‘underperforming’ in their clients’ eyes are in line for dismissal, the survey found, with consultants lining up to tell firms that their services are no longer needed.

There is high turnover anticipated for US and international equity mandates and core fixed income, indicating dissatisfaction with incumbents, the survey found.

Ben Phillips, partner at Casey Quirk, said: “This year’s consultant survey indicates asset owners and gatekeepers are making increasing demands from asset managers. Investment managers failing to adapt to the changing investment framework will suffer from slower growth.’’

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