U.S. Institutional Investors Say Alternative Investments Are Essential as Volatile Markets Are Here to Stay

Transcription

1 Boston, September 25, 2012 U.S. Institutional Investors Say Alternative Investments Are Essential as Volatile Markets Are Here to Stay Concerns about Europe, regulatory uncertainty, global fiscal imbalances keep investors awake at night Three in four U.S. institutional investors (74%) have changed their approach to risk management over the past five years and now consider the use of alternative investments essential to diversify portfolio risk (76%), according to a new study of 151 U.S.-based institutional investors by Natixis Global Asset Management (NGAM), the 13 th largest asset manager in the world. The research was released today by NGAM s Durable Portfolio Construction Research Center. According to the survey, most U.S. institutional investors say that traditional diversification and portfolio construction techniques need to be replaced (64%) and no longer consider conventional 60/40 portfolios to be the best way to pursue returns (72%). Approximately two-thirds believe that increasing allocations to non-correlated assets (64%) and increasing the use of liquid alternatives (68%) are effective strategies for managing portfolio risk. Years of market instability have U.S. institutional investors on edge, said John T. Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. In their view, markets are driven more by economic and political events than by fundamentals. As a result, decisions are often made for defensive reasons. What U.S. institutional investors are looking for now are better responses to manage volatility and risk. European market risk and fiscal shortfalls, possible regulatory changes causing investors to lose sleep Most U.S. institutional investors (68%) cite Europe s financial woes as one of the three most likely sources of market volatility in the next two years. Nearly half (47%) say Europe s woes are one of the top three issues keeping them awake at night, followed by 30% who selected regulatory uncertainty. Asked about the highest threat to meeting institutional investment objectives, 40% of the respondents cited global equity market risk, with global fiscal imbalances ranked second (36%). Investors also are concerned about impacts of anticipated regulatory changes. A substantial majority of U.S. institutional investors (85%) believe there will be a tightening of regulatory restrictions on financial institutions and capital markets participants, regardless of the outcome of the U.S. elections. - more Boylston Street, Boston, MA ngam.natixis.com

2 Three in four (74%) believe U.S. financial institutions will have limits placed on their marketmaking abilities, resulting in their being less competitive. A majority (64%) believe mark-tomarket regulatory requirements prevent investors from being able to capitalize on market opportunities. If I had to do it all over again, I would invest in alternatives Of the respondents who invest in alternative investment products such as hedge funds, private equity and alternative mutual funds, 88% are pleased with the performance of their investments. When asked what they would do if they had to make the choice all over again, 93% said they would increase their allocation to alternatives or invest the same amount, and just 7% said they would decrease their allocation. Attention to risk, use of alternatives When asked whether allocations to the following categories of alternative investments were above, below or on target, institutional investors said: Strategy Above Target On Target Below Target Private equity 26% 54% 20% Single manager hedge funds 25% 55% 20% Funds of hedge funds 23% 61% 16% Real estate 19% 57% 24% Global macro funds 18% 62% 20% Commodities 18% 64% 18% Multi-asset absolute return funds 17% 73% 10% Venture capital 11% 65% 24% Infrastructure 6% 78% 16% Investors are right to reassess their methods of managing and diversifying risk, NGAM s Hailer said. Given the big, abrupt market swings we ve seen in the last few years, making risk a top priority is a sensible adjustment. The same is true of alternative investments, since they help investors assemble durable portfolios that can perform well whether markets move up or down. Methodology The online survey of 151 U.S. institutional investors, which manage assets on behalf of corporate and public pension funds, endowments and foundations, insurance reserves/liabilities and sovereign wealth funds, was taken in June and July of The confidence interval is plus or minus 4.4%. The median asset level managed by U.S.-based respondents was approximately $30 billion. A copy of the global survey highlights is available at The U.S. study is part of a larger global survey of 482 institutional investors in 13 countries in Europe, Asia and the Middle East, as well as the U.K. - more 2/3

3 About Natixis Global Asset Management, S.A. Natixis Global Asset Management, S.A. is one of the 15 largest asset managers in the world based on assets under management. 1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates products around the world. Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies. Headquartered in Paris and Boston, Natixis Global Asset Management, S.A. has assets under management totaling $711 billion ( 560 billion) as of June 30, Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A. s affiliated investment management firms and distribution and service groups include: Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Caspian Private Equity; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; Natixis Asset Management; Natixis Multimanager; Ossiam; Reich & Tang Asset Management; Snyder Capital Management; and Vaughan Nelson Investment Management. 1 Cerulli Quantitative Update: Global Markets 2012 ranked Natixis Global Asset Management, S.A. as the 13th largest asset manager in the world based on assets under management as of December 31, Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC s definition of regulatory AUM in Form ADV, Part 1. # # # Press Contact: NATIXIS GLOBAL ASSET MANAGEMENT BOSTON David Snowden Tel: david.snowden@ngam.natixis.com 3/

4 NATIXIS GLOBAL ASSET MANAGEMENT U.S. INSTITUTIONAL INVESTOR SURVEY HIGHLIGHTS U.S. Institutional Investors Have Changed Risk Management Approaches, Say it is Essential to Invest in Alternatives. Three in four (74%) U.S. institutional investors have changed their approach to risk management over the past five years (Q31), and 73% say they are more confident that their risk-management approach is the right one for today s volatile markets. (Q33) Most institutional investors (76%) now consider the use of alternative investments essential to diversify portfolio risk. (Q27) Three in four (73%) say it is necessary to invest in alternatives in order to outperform the broad market. (Q27) One in three (29%) report that increasing their allocation to alternative/non-correlated assets is one of their organization s three highest investment priorities in the next 12 months. (Q34) U.S. Institutional Investors are Pleased with their Alternative Investments, and Would Invest in Alternatives if They Had to Do it All Over Again. The vast majority (88%) of the respondents who invest in alternative products such as hedge funds, private equity and alternative mutual funds are pleased with the performance of their investments. (Q39) When asked what they would do if they had to make the choice all over again, 93% say they would increase their allocation to alternatives or invest the same amount; just 7% claim they would decrease their allocation. (Q41) The majority (57%) of institutional investors in the U.S. holding alternative assets have done so for eight years or more, with 36% of those reporting they have been investing in alternative strategies for 15 years or more. (Q38) Asset Allocation Targets Above or Below? When asked whether allocations to the following alternative investment categories were above, below or on target, U.S. institutional investors say: (Q40) Strategy Above Target On Target Below Target Private equity 26% 54% 20% Single manager hedge funds 25% 55% 20% Funds of hedge funds 23% 61% 16% Real estate 19% 57% 24% Global macro funds 18% 62% 20% Commodities 18% 64% 18% Multi-asset absolute return funds 17% 73% 10% Venture capital 11% 65% 24% Infrastructure 6% 78% 16% Europe, Global Fiscal and Political Issues are Top Concerns of U.S. Institutional Investors. Seven in ten (68%) U.S. institutional investors cite a contagion resulting from Europe s debt crisis as one of the three most likely sources of market volatility in the next two years. (Q26) Nearly half (47%) say Europe s financial woes are one of the top three issues keeping them awake at night, followed by regulatory uncertainty (30%) and discovering unexpected sources of risk in their portfolios (29%). (Q23) NGAM U.S. Institutional Investor Survey Highlights Page 1 of 3

5 Asked about the greatest risks to meeting investment objectives, 40% of U.S. institutional investors cited global equity market risk, followed by global fiscal imbalances (36%), geopolitical risk (32%) and changes in tax policies or regulations/laws (30%). (Q24) Six in ten (60%) say the issue of economic growth has a significant influence on investment decisions, while 50% call the European financial crisis a major influence on their decision-making. (Q25) Tightening of Regulatory Restrictions Seen as Inevitable. A substantial majority (85%) of U.S. institutional investors believes there will be a tightening of regulatory restrictions on financial institutions and capital markets participants, regardless of the outcome of the U.S. elections. (Q28) Three in four (74%) believe U.S. financial institutions will have limits placed on their marketmaking abilities, resulting in their being less competitive. (Q28) Adopting New Techniques to Contend with Today s Markets is a Necessity. The majority (64%) of U.S. institutional investors say that traditional diversification and portfolio construction techniques need to be replaced. (Q27) Seven in ten (72%) say that conventional 60/40 portfolios no longer are the best way to pursue returns. (Q27) Approximately two-thirds believe that increasing allocations to non-correlated assets (64%) and increasing the use of liquid alternatives (68%) are effective strategies for managing portfolio risk. (Q37) Seven in ten (72%) say the best way to temper market volatility is to increase allocations to noncorrelated assets. (Q20) U.S. Institutional Investors Find it Challenging Under Current Market Conditions to Meet their Objectives and Contend with Volatile Markets. A majority (82%) say they find it difficult to mitigate the impact of market volatility. (Q21) 76% report they have had difficulty protecting the portfolios they oversee from dramatic swings in value. (Q21) Approximately eight in ten (83%) U.S. institutional investors claim it s difficult to meet their total return objectives. More than three in four (78%) say it is difficult to manage tail risk. (Q21) Nine in ten (89%) of those surveyed believe that volatility creates investment opportunities and 83% say market volatility is here to stay. (Q20) However, nearly all (97%) institutional investors in the U.S. say their organization does an average or above-average job in constructing portfolios that protect principal and achieve growth; and 91% say their institutions have average or above-average capabilities in constructing portfolios that can generate positive returns regardless of market conditions. (Q22) Most U.S. Institutional Investors Have Enhanced their Approach to Risk Management in the Past Five Years. One-third (33%) report that their risk tolerance is lower today than five years ago, compared to 26% who say their risk tolerance is higher. (Q30) Nearly two-thirds (65%) of U.S. institutional investors agree that reducing risk means accepting lower returns. (Q20) Three in ten (31%) say that their institutions monitor a risk budget daily to keep overall portfolio risk in check; 53% do so on a regular basis (weekly or monthly) and 13% do so occasionally (quarterly or annually). (Q36) 41% say their institutions make it a practice every day to consider the volatility of an asset or security before considering its potential return; 42% do so on a regular basis (weekly or monthly) and 15% do so occasionally (quarterly or annually). (Q36) NGAM U.S. Institutional Investor Survey Highlights Page 2 of 3

6 Approximately one in five (22%) say that they cannot effectively manage risk in their portfolio because of unpredictable market volatility. (Q20) Looking Ahead to the Next 12 Months, U.S. Institutional Investors Expect to Struggle in Balancing Risk and Return. Asked to select up to three priorities for the next 12 months, 38% say their institution s No. 1 action will be to use strategies that limit exposure to market volatility. (Q34) The second-ranked priority, chosen by 33% of U.S. institutional investors, is to pay more attention to actual measures of risk rather than average measures. (Q34) The No. 3 priority, named by 29%, is to increase the allocation to alternative or non-correlated assets. (Q34) The survey of U.S.-based institutional investors by Natixis Global Asset Management (NGAM), the 13 th largest asset manager in the world, was released on September 25, 2012 by NGAM s Durable Portfolio Construction Research Center. The online survey of 151 institutional investors in the United States was conducted by OnResearch in June- July Institutional investors surveyed manage or oversee corporate pensions, public/government pensions, funds of funds, sovereign wealth funds, insurance reserves/liabilities, and/or endowments/foundations. The median asset level managed by U.S.-based respondents was approximately $30 billion. The U.S. survey is part of a larger global study of 482 institutional investors in 13 countries in Asia, Europe and the Middle East, as well as the U.K. A copy of the global survey highlights is available at About Natixis Global Asset Management, S.A. Natixis Global Asset Management, S.A. is one of the 15 largest asset managers in the world based on assets under management. 1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates products around the world. Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies. Headquartered in Paris and Boston, Natixis Global Asset Management, S.A. has assets under management totaling $711 billion ( 560 billion) as of June 30, Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A. s affiliated investment management firms and distribution and service groups include: Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Caspian Private Equity; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; Natixis Asset Management; Natixis Multimanager; Ossiam; Reich & Tang Asset Management; Snyder Capital Management; and Vaughan Nelson Investment Management. 1 Cerulli Quantitative Update: Global Markets 2012 ranked Natixis Global Asset Management, S.A. as the 13th largest asset manager in the world based on assets under management as of December 31, Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Nonregulatory AUM includes assets which do not fall within the SEC s definition of regulatory AUM in Form ADV, Part 1. # # # NGAM U.S. Institutional Investor Survey Highlights Page 3 of 3