Institutional investors are seeking to boost allocations to alternative strategies to achieve better returns amidst low interest rates, according to a new report produced by BNY Mellon in association with FT.
Nearly 39% of the respondents said they will increase their allocations to alternative investment types, while 6% said they will moderately decrease it.
About two-thirds of respondents said that alternatives had offered returns of at least 12% last year, while over a quarter said the strategies had delivered 15% or more.
The report, Split Decisions: Institutional investment in alternative assets, found that among the various alternative asset classes, private equity is most favored by institutional clients, accounting for 37% of their exposure, followed by infrastructure (25%), real estate (24%), and hedge funds (14%).
When it came to private equity investments, 62% of the respondents said they will look for lower management fees and 55% said they will request more transparency as they seek to optimize value.
Distressed strategies were found to be the most attractive when it came to hedge fund allocations. More than two-third (68%) of the investors currently have exposure to them, 58% ranked them as one of the three most attractive strategies for the coming 12 months.
The report added that emerging markets, on average, now make up 31% of institutional investors’ alternative allocations. APAC-based investors account for the highest EM share at 54% of their alternative portfolios, followed by investors in EMEA at 29% and the Americas at only 16%.
Jamie Lewin, managing director and head of manager research at BNY Mellon Investment Management, said: "The continued growth in alternative allocations will be supported by a steady stream of new products and strategies as fund managers cater to increasing amounts of capital headed toward alternative assets.
"Innovation and adaptability will be two key differentiators that determine which firms succeed in capturing what’s become an integral part of institutional portfolios."