Institutional investors switching to alternatives to combat volatility and enhance returns

(MENAFN- Perceptiona) LONDON – 13th February 2024: Institutional investors are increasingly attracted to alternative asset classes as they predict increased volatility in stock markets this year, according to new research* from Carne Group, a leader in fund regulation and governance solutions for the asset management industry.

Its global study of 200 senior leaders found two out of three institutional investors (67%) believe the level of volatility in stock markets will rise this year, with 6% predicting a dramatic increase. The research found that stock market volatility is driving increased interest in alternative asset classes which are generally less affected by short term price volatility. Eighty-eight believe their organisation’s appetite for risk will be higher this year with 11% saying it will be much higher.

Considering pension funds alone, 92% expect risk appetite to be higher, with 6% expecting it to be much higher, while among family offices the corresponding figures are 83% and 20% respectively.

Around 86% of insurance asset managers expect an increased risk appetite with 6% saying it will be much higher, while for wealth managers the figures are 85% and 14% respectively and for consultants, they are 96% and 13%.

Overall, around 65% of institutional investors interviewed chose hedge funds among the top three private asset classes for growth in inflows, while 57% selected venture capital and 56% named private equity.

Private debt has seen considerable growth over recent years, and continues to be attractive institutional investors, with one in three surveyed (30%) believe that it will increase its allocation over the next five years.

Asset class Number of institutional investors forecasting the asset class will be among the top three for attracting institutional inflows over the next five years
Hedge funds 65%
Venture capital 57%
Private equity 56%
Renewable energy 55%
Private debt 30%
Real estate 30%

John Donohoe, CEO at Carne Group said: “Sustained stock market volatility and investors seeking higher returns has driven increased interest in alternative asset classes which generally show lower levels of correlation to short term price movements, which is important not only for diversification but also for regulatory purposes.

“The growing focus on alternatives is not a short-term move either, with institutional investors predicting strong but selective growth in inflows to alternatives over the next five years. One area we are seeing a particular increase in inflows is private debt, and our research suggests this is likely to continue.”


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