A Study of Allocations to Alternative Investments by Institutions and Financial Advisors

Key Takeaways:

Many institutions and advisors have acknowledged that alternative investments, including hedge fund strategies, private equity, private credit, and real assets, may help enhance returns, manage risk, or improve diversification, among other potential benefits.
Institutions have historically held higher average allocations to alternatives than advisors (23% vs. 6%), given barriers to entry such as manager access, perceived costs, liquidity considerations, and high investment minimums. Such hurdles reflect long-standing transactional frictions that have likely hindered investor implementation in the past.
Based on surveys conducted on behalf of Fidelity, we have compiled insights into the portfolio allocations of institutions and financial advisors to better understand how they are using alternative investments within their multi-asset portfolios.
We also employed quantitative techniques to learn more about the return assumptions implied by these allocations, and what those holdings might suggest about possible under- or over-allocations when compared to the investment expectations of the broader institutional investment universe.
Lower allocations and lower corresponding implied real returns for private assets (by the broader market relative to institutions) suggest investments could flow from developed equity and bond markets into private markets, as investors gain a better understanding of perceived and real hurdles.

Key Takeaways:

Many institutions and advisors have acknowledged that alternative investments, including hedge fund strategies, private equity, private credit, and real assets, may help enhance returns, manage risk, or improve diversification, among other potential benefits.
Institutions have historically held higher average allocations to alternatives than advisors (23% vs. 6%), given barriers to entry such as manager access, perceived costs, liquidity considerations, and high investment minimums. Such hurdles reflect long-standing transactional frictions that have likely hindered investor implementation in the past.
Based on surveys conducted on behalf of Fidelity, we have compiled insights into the portfolio allocations of institutions and financial advisors to better understand how they are using alternative investments within their multi-asset portfolios.
We also employed quantitative techniques to learn more about the return assumptions implied by these allocations, and what those holdings might suggest about possible under- or over-allocations when compared to the investment expectations of the broader institutional investment universe.
Lower allocations and lower corresponding implied real returns for private assets (by the broader market relative to institutions) suggest investments could flow from developed equity and bond markets into private markets, as investors gain a better understanding of perceived and real hurdles.