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In the second annual Context Summits Allocator Trends Report, optimism for the alternative asset industry and uncertainty for the market were the two key themes.
Overall, institutions and family offices are maintaining their commitments to alternative asset managers, continuing a trend from 2016 when 79% of allocators increased their overall allocation to alternatives. For 2017, nearly three out of four (72%) allocators surveyed plan to increase their allocations to alternative fund managers, suggesting continued strong demand for the industry. Likewise, more than two out of three investors (68%) surveyed intend to decrease their cash position by the end of the year, a higher percentage than in 2016 (62%), indicating a willingness to remain invested.
Although 2016 had a few periods of increased volatility, they were successively shorter in nature. The drop in equity prices and the immediate recovery in the ﬁrst 8 weeks of the year was relatively dramatic. However, both Brexit and the Trump election were not expected by the market and seen as low probability events which resulted in very brief periods of volatility. The resulting market moves were certainly not consensus as risk assets steadily moved higher throughout the year. As the US equity bull market and the economic cycle ages, allocators are concerned about what the catalyst may be to change the extremely low volatility environment that marked most of 2016. Political and regulatory risk were the two most prominent risks mentioned by allocators.
Fifty-one percent of allocators hold a positive outlook on the alternative asset management industry for 2017, with an additional 35% of survey respondents taking a neutral stance. Some of this optimism may stem from the industries response to investors request for ﬂexibility on fees and transparency. Allocators are next, turning their focus to how alternative fund managers are positioned for future volatility.
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