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A report published by McKinsey Quarterly finds that alternative investments have rebounded from the financial crisis and soon should outpace traditional assets.
The financial crisis impacted many things, including alternative investments, such as hedge funds, private equity, real estate, commodities and infrastructure, a McKinsey Quarterly report states. But research shows those alternative investments appear to have recovered and are on track to outpacing traditional assets. That means investors might have to shift their operating focus to capture the opportunity, the report states.
McKinsey researchers partnered with Institutional Investor to study institutional investing. Their findings, presented in a report titled The Mainstreaming of Alternative Investments, show that most traditional asset managers surveyed agreed they needed to improve their risk-management skills and product expertise as well as change their sales processes and incentives. Also, managers specializing in alternatives reported that they must too need to prepare “mainly by adding customer-centric capabilities to their strengths in generating market-beating results,” the report states.
Highlights of the report’s findings include the following, according to a summary by McKinsey Quarterly:
- The upward swing for alternative investments should continue, as institutional investors expect that by the end of 2013 their allocations to alternatives will hit 25 percent, up from 23 percent in 2011.
- Larger, more sophisticated institutional investors are increasingly directing their money to hedge funds or bringing management in-house, while smaller, less experienced firms are using diversified multi-asset funds.
- Alternative funds are moving quickly into retail investment portfolios. By 2015, retail alternative investments are expected to account for one-quarter of revenues and a majority of revenue growth, the summary states.