Alternatives can play a unique role in helping organizations achieve their desired investment outcomes, and in today's dynamic alternative investment marketplace, institutional investors are using alternatives in multiple ways.
Irvine, CA (PRWEB) August 12, 2013
Driven by record low interest rates, volatile equity markets, and other cyclical and structural factors, institutional and retail investors are fueling strong growth in alternative investments. Last year, assets in hedge funds, private equity, real estate, commodities and infrastructure reached a record $6.5 trillion, according to a recent report from McKinsey & Company (mckinsey.com/insights/financial_services/how_alternative_investments_are_going_mainstream).
Despite poor performance, illiquidity and serious redemptions during the financial crisis, alternative assets grew at a 14.2% compound annual growth rate from 2005 through 2011. That compares to 1.9% growth for non-alternative investments.
"Alternatives survived the crisis and now are stronger than they were five years ago," said Onur Erzan, principal at McKinsey and co-author of the report titled, The Mainstreaming of Alternative Investments: Fueling the Next Wave of Growth in Asset Management. "Alternative investments are here to stay."
Besides cyclical factors such as low rates and market volatility, structural factors also are driving investors toward alternatives. For institutional investors, the desire to better match assets to liabilities has led many pension funds to increase allocations to fixed income securities. However, fixed income investments cannot generate the returns needed to pay benefits. Pension fund managers are turning to alternatives such as 1st Trust deed Mortgage Notes to generate increased alpha, according to Jim Stepanian CEO of Summerlin Asset Management.
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That effort to align investments with income needs is also leading institutional investors to shift to absolute return investment frameworks. Financial advisors and individual investors are doing the same. According to McKinsey, 50% of advisors are managing client portfolios against an absolute return benchmark now. Alternative investments such as market neutral strategies are a good fit for such frameworks.
- Seeking Diversification And Stability
Meanwhile, stung by the bear market of 2007-2009, and faced with underfunded retirements, retail investors are looking for investment options that promise better diversification and stable returns. Investment managers are obliging with new products that package alternative strategies into regulated funds.
The result is that both institutional and retail investors are increasing their allocations to alternative investments. In the U.S., institutional investors expect to have 28 percent of their portfolios allocated to alternative investments by the end of 2013, up from 26% in 2010, according to the report which is based on surveys of institutional investors, asset managers, registered investment advisors and other investment professionals.
There are three core reasons why institutional investors will continue to pour money into alternatives, according to a new report on the sector.
These are diversification, protection against volatility, and seeking non-correlated returns.
They are revealed in the annual Russell Investments Survey on Alternative Investing report which is based on interviews with 146 institutions totaling more than $1.1 trillion in assets across North America, Europe, Australia and Japan. (russell.com/us/institutional-investors/research/global-alternative-investing-survey.page)
The survey found respondents cited diversification and shelter from volatility as main reasons for investment into the sector, leading Russell to anticipate rising allocations during the next three years.
"The volatility experienced in the market today reinforces institutions desire to invest in alternatives," said Shannon DeRosby, director, alternative investments, at Summerlin Asset Management.
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While diversification was the main reason for investing into alternatives by 90% of survey respondents, 64% said the main reason was to protect against volatility and 64% said an important reason was to get exposure to low correlation strategies.
"The questions institutions are now asking is not whether to use alternatives but what the best way is to use alternatives to achieve their own objectives," added DeRosby.
Our survey showed that 1st Trust Deed Mortgage Notes is the best alternative investment in the marketplace today.
"Alternatives can play a unique role in helping organizations achieve their desired investment outcomes, and in today's dynamic alternative investment marketplace, institutional investors are using alternatives in multiple ways," said Jim Stepanian CEO of Summerlin Asset Management.
Summerlin Asset Management has a good supply of 1st Trust Deed Mortgage Notes that yield on average of 10-14%.
Please contact Tammy or Shannon at 928-854-7747 to learn more or visit http://www.investinsam.com .