Alternative investing by institutions driven by private credit and private equity

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B. G., Opalesque Geneva:

In a flash Q1 survey on alternative investments made by institutions, Clearwater Analytics found that alternative investments are dominated by private credit and private equity, as well as real estate. This is followed by hedge funds and infrastructure, and a small segment in crypto.

Clearwater received insights from 110 respondents, representing over $5 trillion in AuM. Of those, 80% are asset owners and 20% are managers.

A third of respondents said current and expected market conditions, such as inflation and recession, will impact their allocations. 42% said they would stay the course.

For the great majority of respondents, yields and returns, as well as diversification are the top drivers for investing in alternatives. “Further, one of the significant differentiators of investing in alternatives is liquidity – both on the way in and the way out. We asked about capital deployment and found that one-third said it was slow to very slow. With all the focus on alternatives, perhaps demand is outstripping supply.”

With regards to alternative investing challenges – operational or otherwise – some institutions pass on alternatives due to these challenges, and others cited data quality and data availability as a major challenge. Almost half said custodian/service provider connectivity and data standardisation could be improved upon.

“Alternatives continue their march toward the mainstream – perhaps we shouldn’t call them alternatives anymore,” concludes the report. “Investors can certainly achieve higher returns and diversification with a well-constructed alternatives portfolio, if they can navigate the capital deployment, operational, and data transparency considerations.”

Clearwater Analytics is a U.S.-based provider of web-based investment portfolio accounting, reporting, and reconciliation services for institutional investors. Their clients include corporate treasuries, insurance companies, investment managers, banks, governments, and other institutional investors both in the United States and worldwide.