Institutional investors gear up for a turbulent year with a strategic pivot towards alternatives

By Newsdesk

February 14 2024
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In facing anticipated stock market volatility this year, institutional investors are veering towards alternative asset classes, reveals new research from Carne Group, a prominent entity in fund regulation and governance for the asset management sector.

Institutional investors gear up for a turbulent year with a strategic pivot towards alternatives

The study surveyed 200 senior leaders, uncovering that a significant 67% of institutional investors forecast an upswing in stock market fluctuations, with a small fraction (6%) expecting a substantial rise. This anticipated volatility is propelling a heightened interest in alternatives like private debt, infrastructure, private equity, and hedge funds, known for their resilience against short-term price variations.

The research indicates a robust inclination among organisations towards embracing risks, with 88% of respondents asserting an expansion in their risk appetite this year, including 11% who foresee a considerable jump. Specifically, pension funds exhibit a pronounced readiness for greater risk, with 92% of them bracing for an uptick, 6% of which anticipate a major increase. Similarly, family offices and insurance asset managers show a strong propensity towards risk, with substantial fractions of them prepared for heightened risk levels.

Looking at the investment horizon, hedge funds emerge as the preferred choice among institutional investors, with 65% ranking them among the top three asset classes expected to attract the most inflows. Venture capital and private equity also draw considerable attention, being chosen by 57% and 56% of investors, respectively. Private debt is notably on an ascendancy, with a third of those surveyed (30%) predicting an increased allocation to this asset class over the forthcoming five years.

John Donohoe, CEO of Carne Group, commented on the findings, highlighting the strategic shift towards alternatives amid stock market uncertainties and the quest for higher returns. He pointed out, “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.” Donohoe further observed that the interest in alternatives, particularly in private debt, is not a fleeting trend but signifies a discernible and selective five-year growth trajectory in institutional inflows.

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%

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