Key Takeaways
- • Two-thirds of institutional investors surveyed by Natixis expect a portfolio with 20% allocation to alternatives to outperform a traditional 60/40 equity/bond mix, signaling significant appetite shift driven by concurrent equity and fixed-income weakness in 2023.
- • Defined contribution plan managers are increasingly incorporating alternatives into their investment lineups, with growing discussions between DC plan advisers and alternative asset managers including private equity, infrastructure, real estate, and liquid strategies.
- • The "democratization of alternatives" is accelerating, as the alternative investment industry works to expand access to institutional-quality strategies for investor segments previously excluded from these opportunities.
- • Both equities and bonds declined together in recent market conditions, creating portfolio pressure that has motivated institutional investors to evaluate alternative assets as yield and stability sources heading into 2023.
Summary
Institutional investors are reassessing portfolio construction heading into 2023 as traditional asset classes face sustained headwinds. According to a Natixis survey, two-thirds of institutional investors believe that portfolios incorporating a 20% allocation to alternatives would outperform a conventional 60/40 stock-bond portfolio. This sentiment reflects the unusual market dynamic of the past two years, where equities and fixed-income securities have declined simultaneously—creating what Neil Brown, head of fund investor relations at sustainable infrastructure investor Actis, characterizes as "a harsh portfolio market for many investors."
The confluence of equity and bond weakness has generated measurable momentum toward alternative assets. Luke Vandermillen, managing director of retirement investment support for Principal Asset Management, notes that challenging equity and fixed-income performance "has created more interest and generated more discussions for those looking at investment lineup options." This shift extends beyond traditional institutional allocators; defined contribution plan managers are now actively evaluating alternatives to incorporate into their investment lineups, a trend Actis's Brown expects will intensify throughout 2023.
Alternative asset classes attracting increased scrutiny include private equity, infrastructure, real estate, and more liquid alternative strategies. The broadening interest reflects a structural evolution in how alternatives are being deployed within retirement plans and institutional portfolios, driven by dual imperatives: portfolio diversification and yield generation in a challenging traditional asset environment.
The shift toward alternatives is occurring within the context of broader "democratization of alternatives," where the industry seeks to expand access to previously restricted investor segments. As institutional investors and their advisers evaluate full portfolios amid market volatility, defined contribution plan sponsors are joining the conversation around alternative asset integration—signaling that what was traditionally institutional-only territory may be extending into broader retirement plan structures.
The confluence of equity and bond weakness has generated measurable momentum toward alternative assets. Luke Vandermillen, managing director of retirement investment support for Principal Asset Management, notes that challenging equity and fixed-income performance "has created more interest and generated more discussions for those looking at investment lineup options." This shift extends beyond traditional institutional allocators; defined contribution plan managers are now actively evaluating alternatives to incorporate into their investment lineups, a trend Actis's Brown expects will intensify throughout 2023.
Alternative asset classes attracting increased scrutiny include private equity, infrastructure, real estate, and more liquid alternative strategies. The broadening interest reflects a structural evolution in how alternatives are being deployed within retirement plans and institutional portfolios, driven by dual imperatives: portfolio diversification and yield generation in a challenging traditional asset environment.
The shift toward alternatives is occurring within the context of broader "democratization of alternatives," where the industry seeks to expand access to previously restricted investor segments. As institutional investors and their advisers evaluate full portfolios amid market volatility, defined contribution plan sponsors are joining the conversation around alternative asset integration—signaling that what was traditionally institutional-only territory may be extending into broader retirement plan structures.
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