By Ilonka Oudenampsen

Investment in alternatives by pension funds in OECD countries has increased from 6 per cent to 19 per cent of total assets under management from 2000 to 2012, according to research by State Street.

The study By the Numbers: The Quest for Performance, discovered a continued appetite for alternatives amongst institutional investors, despite greater concerns about return volatility.

Furthermore, it also found that a globally diversified portfolio including alternatives generated 70 per cent enhanced performance net of fees with marginally higher volatility versus a more traditional portfolio composed of 60 per cent equities and 40 per cent fixed income.

Using empirical analysis, supplemented by manager interviews and survey reviews, the study looked at the investment patterns of institutional investors across an extensive asset profile diversified by geography and a broad use of alternative assets and strategies.

The researchers identified six critical factors driving innovation in meeting the dual challenges of more risk and less returns, including the persistence of low returns, higher return variability, converging correlations, the growing asset-liability gap, a real risk of tail events and illiquidity and the competitive pressure to mimic asset allocation strategies. The performance impacts of investor responses were then traced and distilled into five ways to achieve performance goals including becoming factor-curious, liability-sensitive, liquidity-selling, agency-aware and capacity-building.

“Not all alternatives are created equally, and neither are the investors who turn to them in the hunt for alpha,” said State Street’s Centre for Applied Research global head Kelly McKenna.

“Today’s successful institutional manager will balance a desire for return with an appreciation for the complexity of portfolio risk as well as investment and liquidity constraints while respecting the rapid nature of market events that can implicate return objectives.”

The study was produced by the Center for Applied Research, State Street’s independent think tank, in partnership with the Fletcher School of Law and Diplomacy at Tufts University.

Home     More News


Other stories you may find of interest:

Financially sustainable companies deliver superior returns - Pictet
Socially responsible investment has to deliver both sustainability and higher risk-adjusted returns if it is to thrive and become the strategy of choice, according to a new study by Swiss private bank Pictet & Cie

SRI becoming mainstream
A new survey from sustainability think tank Eurosif has revealed 56% of corporate pension funds have a socially responsible investing (SRI) policy in place

‘Dutch members want more responsible investments, funds lag behind’
Dutch pension funds are currently investing less than 0.5 per cent directly in sustainable energy, despite more than half of the Dutch population wanting to (partly) invest their pension in sustainable energy, a study on behalf of Dutch charity Nature & Environment found



PA Executive Series

Winners Brochure 2014


This website is a part of Perspective Publishing Limited, registered in England No 2876166.
By using this website you agree to our COOKIE POLICY.