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Institutional investors switching to alternatives to combat volatility and enhance returns: Carne Group

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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.

Its global study of 200 senior leaders found two out of three institutional investors (67 per cent) believe the level of volatility in stock markets will rise this year, with 6 per cent 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 per cent saying it will be much higher.

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

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

Overall, around 65 per cent of institutional investors interviewed chose hedge funds among the top three private asset classes for growth in inflows, while 57 per cent selected venture capital and 56 per cent 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 per cent) believe that it will increase its allocation over the next five years.

John Donohoe, CEO at Carne Group says: “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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