Alternative investments have generally underperformed over the past six years, as U.S. equities have experienced a sustained bull market. But now, with major stock averages hovering near all-time highs, bond yields near all-time lows, and cash yielding nearly zero, institutional investors are looking to expand their investments in alternatives.
According to a survey conducted by Credit Suisse Capital Services, a stunning 93% of institutional investors plan on increasing or maintaining their allocations to alternative investments in the second half of 2015. The survey included fund of funds, family offices, consultants, endowments & foundations, private banks, and pension funds from around the globe. Fifty-two percent of responses came from the Americas, while 38% came from the “EMEA” (Europe, Middle East, and Africa) region, and the remaining 10% came from the Asia-Pacific zone.
Long/Short Equity Tops America’s List
As detailed in a recent statement, the most popular hedge fund strategies among institutions in America were long/short equity (56%), event-driven (47%), and global macro (38%). Institutions overseas also showed a strong preference for these strategies, particularly global macro, which led both the EMEA and the Asia-Pacific, as chosen by a respective 54% and 44% of respondents from those reasons. Like their American counterparts, EMEA institutions also liked long/short equity (46%) and event-driven (43%); while Asia-Pacific institutions preferred multi-strategy (44%) and long-short credit (39%).
“Despite ongoing volatility in the global marketplace, institutional investors remain steadfast in their approach to hedge fund allocations,” said Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse.
Preference for Global Macro Globally
In fact, anticipated volatility is one of the principal reasons institutions are turning to alternatives, and global macro strategies in particular – the strategy topped the combined global investor list and was the only strategy to fall into the top 3 within each region. Global macro strategies allow managers to capitalize on global macroeconomic opportunities across asset classes, with strategies that have very low (or no) correlation to traditional asset classes.
The strategy’s rise in popularity mirrors the fall of CTA/managed futures funds, which are often lumped into the same category with global macro, but Credit Suisse and its survey respondents make the distinction. The category fell from the third-most sought-after strategy in last year’s survey to ninth in this mid-year update. Credit Suisse cited fears of a Chinese slowdown as one of the factors weighing on CTA/managed futures.