Next Generation Alternative Invstng

I n v e s t o r s
R e s p o n d
For Institutional
Use Only
About JPMorgan Asset Management

For more than a century, institutional investors have turned
to JPMorgan Asset Management to skillfully manage their
investment assets. This legacy of trusted partnership has
been built on a promise to put client interests ahead of
our own, to generate original insight, and to
translate that insight into results.
Today, our advice, insight and intellectual
capital drive a growing array of innovative
strategies that span U.S., international and
global opportunities in equity, fixed income,
real estate, private equity, hedge funds, infrastructure and asset allocation.
FOREWoRD
We first reported a growing demand for alternative
strategies in our 2005 investment survey. Since
that time, changes in the investing and economic
environments, along with evolving regulations have
spurred further innovation and accelerated the
adoption of alternative investment strategies.
In the first quarter of 2008, we talked to approximately 200
institutional investors about alternatives. The response was
unequivocal. Alternative strategies, including private equity,
real estate and absolute return/hedge funds are now established
components of many institutional portfolios. At the same time,
infrastructure, portable alpha and green investing are defining
their strategic footprint.
JPMorgan Asset Managements leadership position in alternative
investing has given us a unique perspective in understanding the
needs of corporate plans, public funds, endowments, foundations,
and other institutions. Our surveys, workshops and conferences
enable our clients to gain a better understanding of alternative
investing. They also provide a forum for exchanging ideas among
peers, learning about new investment strategies and discovering
innovative solutions to todays investment challenges.
We are deeply grateful to all the institutions that took part in our
research and made this report possible. We hope this report will
provide you with a benchmark view of the state of U.S. institutional
investors in their quest for investment success.
Sincerely,
John H. Hunt
CEO Institutional Americas
JPMorgan Asset Management
table of contents
EXECUTIVE OVERVIEW
KEY FINDINGS
Part 1: Analysis by ASSET CLASS
10 ABSOLUTE RETURN/HEDGE FUNDS
14 PRIVATE EQUITY
17 REAL ASSETS: REAL ESTATE
19 REAL ASSETS: INFRASTRUCTURE
22 REAL ASSETS: OTHER
23 PORTABLE ALPHA
25 NET LONG (130/30)
26 GREEN/SUSTAINABLE
Part 2: Analysis by INVESTOR SEGMENT
28 CORPORATE PENSION PLANS
32 PUBLIC PENSION FUNDS
36 ENDOWMENTS & FOUNDATIONS
Conclusion
PARTIAL list of participants
executive overview
Over the last decade, alternative investments
have seen steady growth, to the point that
many in the industry question whether they are
truly alternative anymore. Our most recent
survey of some of the largest U.S. institutional
investors should put to rest any lingering
doubt. The survey confirms that these strategiesnow established components of many
institutional portfoliosare no longer
alternative at all.
In fact, alternatives now play an essential role
in institutional portfolio strategies, and we
expect across-the-board allocation increases
despite recent market turmoil.
Growth in assets, growth in options

Our survey results clearly indicate that institutional
investors as a whole are embracing all available
options within alternativesboth the more traditional
and the cutting edge. Strong inflows are expected for
the largest and most well-established alternative asset
classes (real estate, private equity, absolute return/
hedge funds), as well as a range of new, innovative
strategies that are already taking hold.
For this survey, we expanded the alternatives universe
to include several of these newer strategies and found
substantial growth potential in categories such as:
n
Infrastructure, which is becoming an important

diversification strategy within real assets, a category increasingly used to refer to tangible assets
(e.g., real estate, commodities, infrastructure, farmland/timber, etc.) which can help preserve the real
value of portfolios.
G
reen/sustainable investing, which captures a
rapidly emerging trenda non-traditional thematic investment approach that blends economic/
market opportunity with policy considerations and
environmental concerns.
P
ortable alpha and net long (130/30) strategies,
which may not be categorized as alternatives, but
have a philosophical or functional connection to
alternatives. These strategies seek to help investors

add alpha to traditional allocations, either by porting alpha from other sources, or making traditional
assets work harder and smarter. Alternative strategies and investment approaches are often used to
generate the additional alpha.
Alternatives are helping investors meet

their objectives
As investor sophistication increasesand plans are
less constrained in their views of asset class boundaries
and the management of alpha and betaalternatives
are playing an ever more important role in enhancing
portfolio risk/return characteristics. An expanding
opportunity set within alternatives gives investors
many more options regarding how and where to
incorporate them.
Ultimately, some of the most interesting survey data
concerns the question of why?
Here we see that within each investor segmentcorporate plans, public funds, and endowments and foundationsalternative asset classes are being custom fit
into portfolios with a specific purpose, to help address
sector-specific issues and challenges. These new tools
have been a critical complement to traditional portfolios, and planned increases to alternatives are a testament to their overall effectiveness in helping investors
meet their unique objectives.
The future of alternatives will not be without challengese.g., how to access top managers and highquality opportunities. Liquidity, transparency, education, and resource issues will also grow with the size
of these allocations. But our survey suggests that, in
the view of investors, such concerns continue to be
outweighed by the benefits investors are reaping and
continue to expect from alternatives.
We believe the survey tells a powerful and very positive story about alternativesone that will continue
to unfold over the next several years.
Next generation alternative investing
EXECUTIVE OVERVIEW
Research methodology
This report provides the findings from JPMorgan
Asset Managements 2008 institutional investor
surveyNext Generation Alternative Investing.
The study, conducted earlier this year, canvassed senior
decision makers at the largest U.S. corporate and public defined benefit plans, and Endowments and Foundations (E&Fs)191 institutions representing
approximately $1.26 trillion in assets (Exhibit 1).
The survey was conducted for JPMorgan Asset Management by Greenwich Associates, primarily via
phone interviews, during first quarter, 2008. Corporate and public plan respondents were drawn from
Greenwich Associates annual survey of plan sponsors
and includes those investing or planning to invest in
alternatives.
Exhibit 3 shows the funded status of pension plan

respondents. The management of funded status can
influence strategic asset allocation policies and the use
of alternatives by these investors.
Allocation data was self-reported by survey participants, and all results are based on available responses
to specific survey questions. The respondent base may
vary across different asset categoriesi.e., some
respondents did not provide data in every category, or
answer every question. Such reporting inconsistencies
may lead to discrepancies: in some cases the reported
total alternative allocation does not exactly match
the sum of individual alternative asset class allocations. However, these discrepancies do not affect either
the direction or degree of the trends identified in this
survey.
Exhibit 1: Survey respondent base*

76 Corporate plans
($4.2 bn avg AUM)
50 Public funds
($14 bn avg AUM)
191 respondents
$1.26 trillion
total AUM
(as of 12/31/07)
56 E&Fs
($3 bn avg AUM)
9 Other
($14.7 bn avg AUM)
Exhibit 2 provides a breakdown of respondents by

assets under management within each investor segment. It highlights the fact that public fund respondents are, on average, three to four times larger than
corporate plan and E&F respondents. Average allocations in our survey report are not dollar-weighted.
Therefore, it is important to keep these size differences
in mind when considering potential asset flows,
because a similar percent change in allocation could
generate much larger asset flows from public funds
than from corporate plans or E&Fs.
Exhibit 2: Distribution (%) of respondents by size ($ AUM)

Size ($ billions)
Under $1
$11.9
$24.9
$59.99
$1014.9
$1519.9
$2029.9
$30+
Total (185)
Corporate plans * ( 72)
Public funds (48)
E&Fs (56)
Taft-Hartleys (9)
6%
34
32
11
9
2
2
5
Avg AUM $4.2 bn

4%
29
46
13
6
1
1
Avg AUM $14 bn

2%
21
25
15
13
6
4
15
Avg AUM $3 bn
11%
54
20
5
11
Avg AUM $14.7 bn

22%
22
33
11
11
As of 12/31/07. Results may not sum to 100% due to rounding. $ AUM for corporate and public respondents is for defined benefit plans.
Exhibit 3: Distribution (%) of pension plan respondents by funded status

Funded status
Total (114)
Corporate plans (63)
Public funds (44)
Taft-Hartleys (7)
Less than 80%

80-95%
96 to 100%
Over 100%
9%
33
28
29
20%
37
43
25%
50
16
9
43%
29
29
As of 12/31/07. Results may not sum to 100% due to rounding.
* Total and average $AUMs exclude 4 corporate and 2 public funds for which assets were not reported. Other refers to 9 Taft Hartley plans. Due to small sample size,
Taft-Hartley responses are only included in total respondent results.
2
next generation alternative investing
key findings
I. Alternative or essential?
Alternatives have become an essential part of
portfolio strategies for institutional investors
employing them. Growth expectations for
alternatives remain strong despite current
market disruptions, dislocations, and sub prime
contagion. Institutional assets are shifting from
the traditional to the alternative.
n

Among
total survey respondents, average allocations to alternatives exceed 18% and are expected
to exceed 22% by 2010an increase of over 20%
(Exhibit 4). Endowments and Foundations (E&Fs)
continue to lead the way with a projected 36% of
portfolio assets committed to alternatives by 2010.

While
there are distinct differences among investor
segments, an overall alternatives allocation of 20%
to 30% is seen as about right. Only 37% of respondents said this range was too high, and 20% said it
was too low (Exhibit 5). On average, E&F portfolios already exceed these allocation levels.

Surprisingly,
the rate of growth of alternatives
overalland even within asset classesseems
unaffected by recent market turmoil. In some cases,
allocation increases are the result of investors seeking opportunity in current market dislocations.
Exhibit 5: Overall, respondents feel an allocation of 20% to 30%

to alternatives is about right
% total respondents (178)
Too low?
20%

Growth
is being driven by a pervasive need to
enhance and diversify returns, and alternative allocations are being funded by a shift in allocations
away from traditional assets. Across all investor
segments, broad issues of diversification and
increased returns were cited as the primary
drivers of changes to alternative allocations.
Just right?
43%
Too high?
37%
Would you say a 20% to 30% asset allocation to alternatives is... Asked of all
respondents. Respondent base is in parenthesis.
Exhibit 4: Allocations continue to shift from the traditional to the alternative

Average allocations across all respondents (%)
100
22
18
80
11
26
26
Alternatives
13
30
26
60
15
33
11
28
Fixed Income
16
27
18
Total Equity
29
36
27
19
18
40
55
51
63
57
52
2007
2010
61
57
56
51
2007
2010
2007
20
47
0
2007
Total
2010
2004
Corporate
2004
Public
2010
E&F
Data for 2007 and 2010 is from this current 2008 survey, while data for 2004 is from the JPMorgan Asset Management New Sources of Return Survey, 2005. In both
surveys, corporate and public respondents were drawn from the largest 350 U.S. pension plans, but the composition of the respondent base varies. Base for 2005
survey: corporate (64), public (50); base for 2008 survey (2007, 2010): total (146, 133), corporate (62, 56), public (39,34), E&F (43,40).
Note: Totals may not sum to 100% due to rounding. Allocations presented here are averages of allocations provided at the total alternatives, fixed income and equity
levels. Similarly, allocations to alternative asset categories (e.g., those presented in Exhibit 6) are averages of allocations provided at the specific strategy level. The
number of available responses may differ across component strategies. Therefore, component data will not necessarily sum to these total alternative values.
key findings
II. Sizing up strategies
Growth in average allocations is expected across

all major alternative asset classes, with absolute
return/hedge funds and private equity growing
the fastest (Exhibit 6).
n
A
bsolute return/hedge funds: These strategies
have the highest average allocation of any alternative asset classfor current investors in this asset
class (Exhibit 7), as well as across all survey respondents, including investors and non-investors
(Exhibit 8). We estimate that these strategies will
account for 40% of net inflows into alternatives
through 2010.
P
rivate equity: Growth for this more traditional
alternative will also be strong, led by 62% of current
investors planning to increase allocations, the highest across all alternative asset classes (Exhibit 9).
Given an already high participation rate (75%), the
percentage of new investors adding this asset class is
expected to be relatively low (Exhibit 10).
Exhibit 6: Allocations are expected to increase across major

alternative asset classes
Average total portfolio allocations (%)investors and non-investors
40
R
eal assets/real estate: This mainstream portfolio
component will experience more modest growth
receiving a boost from new and existing E&F investorswith an increasing emphasis on diversification into non-U.S. assets.
III. Diversification within alternatives

Investors are emphasizing diversification within
their alternative portfoliosamong various established and new types of alternative strategies, as
well as across geographic regions.
n
As investors seek to diversify holdings within

real assets, two asset classes in this category are
expected to see substantial growth:
R
eal assets/infrastructure is expected to see its
relatively small investor base more than double
over the next three yearsled by new corporate
and public plan investors (Exhibit 10).
Exhibit 7: Average allocations across all current investors in
11.5
Private equity
8.6
Infrastructure/other real assets

Real estate
30
Absolute return/
hedge funds
(89) (77)
14.1
5.8
5.8
6.5
10
1.7
5.1
2.4
5.8
4.3
5.2
1.1
1.3
4.5
5.0
9.1
3.9
4.5
4.9
6.6
Private
equity
(94) (81)
Real
estate
(101) (88)
Based on respondents currently investing in the specified asset class.

Respondent base is in parenthesis.
9.3
7.4
7.0
6.6
16.3
25
20
2010
13.4
Absolute return/hedge funds
35
15
2007
Average allocation (%)
4.4
0.6
Exhibit 8: Average allocations across all respondents for
6.4
1.2
4.9
7.3
3.9
2010
9.3
7.4
3.5
7.2
2007

5.1
6.5
4.9
5.1
5.8
5.4
0
2007 2010
Total
(146) (133)
2007 2010
Corporate
(62) (56)
2007 2010
Public
(39) (34)
2007 2010
E&F
(43) (40)
Note: Allocations presented here are averages of available responses. The

number of available responses may differ across component strategies.
Allocations in Exhibit 4 are averaged across all available responses at the total
alternatives level. Therefore, total alternative allocations in Exhibit 4 do not
represent the sum of component allocations presented here.
Absolute return/
hedge funds
(129) (116)
Private equity
(126) (112)
Real estate
(130) (116)
Average allocations are calculated across all respondentsincluding investors

and non-investors in the specified asset class. Respondent base is in
parenthesis.
key findings
Other real assets (e.g., oil & gas, commodities, farmland/timber, maritime, etc.) will see the
greatest growth from allocation increases by current investorslargely E&Fswith moderate
growth among new investors (Exhibits 9, 10).
n
P
ortable alpha is currently used by 31% of respondents; an additional 15% expect to add these innovative strategies by 2010 (Exhibit 11).
Exhibit 9: Percentage of all current investors planning to increase

(decrease) allocations to
% of respondents
Plan to increase
53
46
-5
-7
Absolute return/ Private
hedge funds
equity
(103)
(125)
-10
Real
estate
(125)
Exhibit 6, in combination with Exhibits 7

through 11, capture our broad findings regarding the growth of individual alternative asset
classes across the total survey respondent
base. Similar exhibits throughout this report
provide additional detail at the investor segment level.
n
Plan to decrease
62
53
Getting the big picture:
53
0
-7
Infrastructure
Other
(17)
real assets
(58)

n
Exhibit 10: Participation ratespercentage of total respondents

currently investing or planning to invest in
% of respondents
Currently invest
Plan to invest
38
5
Absolute return/ Private

hedge funds
equity
(180)
(178)
Real
estate
(182)
13 14
Infrastructure
Other
real assets
(152)
(175)
Exhibit 11: Participation ratespercentage of total respondents

currently investing or planning to invest in
% of respondents
Currently invest
Plan to invest
n
31
24
15
9
Portable
alpha
(170)
Exhibit 7 shows current 2007 and expected

2010 average allocations across all respondents currently investing in the specified
asset class.
76
75
59
10
E xhibit 6 shows average alternative allocationscurrent 2007 and anticipated 2010

across all survey respondents, including both
current investors and non-investors (those
planning to invest and those not considering
investing) in the specified asset classes. This
view captures the impact on growth of both
new investors adopting these strategies and
existing investors planning to increase or
decrease current allocations.
Net long equity

(130/30)
(173)
12
11
Green,
sustainable
(148)
E xhibit 8 shows current 2007 and expected

2010 average allocations for all respondentsincluding both investors and noninvestors.
Exhibit 9 shows the percentage of respondents currently investing in and planning to
increase (decrease) allocations to the specified asset class.
Exhibit 10 shows current investor participation rates, as well as the percentage planning
to invest.
E xhibit 11 shows current investor participation rates, as well as the percentage planning
to invest in newer alternatives.
key findings
N
et long equity strategies (e.g., 130/30) are used
by about a quarter of investors, with 9% intending
to add them, primarily to enhance returns of traditional equity allocations (Exhibit 11).
G
reen/sustainable, with a small current investor
base, showed surprising strength, with a significant
boost expected from public funds over the next
three years.
Survey results reveal a fast-growing emphasis on

geographic diversification. Among all alternative
asset classes, this trend is most evident in real
estate. However, the appeal of non-U.S. assets
is also evident in private equity.
IV. Investor dynamics

Although all investors share a common need
for return enhancement and diversification,
the growth dynamics of alternatives play out
differently in each investor segment, due to
unique issues and concernse.g., institutional
objectives, regulatory challenges, financial and
board constraints, and levels of experience.
(In-depth discussion of the dynamics within
individual investor segments is provided in
subsequent sections of the paper.)
n
Corporate plan sponsors appear somewhat more

cautious than other investors with regard to alternatives. We see this posture driven primarily by regulatory and accounting reforms, which pose a twopronged challenge for corporate plan sponsors:
controlling the impact of the plan on corporate
financials, while still earning returns sufficient to
meet benefit obligations.
Among corporate plans, specifically, over the next

three years:
A
bsolute return/hedge funds, infrastructure, and
portable alpha will have the highest rate of new
investors.
P
rivate equity shows the highest percentage of
current investors planning to increase their
allocations.
W
hile absolute return/hedge fund allocations
may see somewhat slower growth among corporate versus public funds, we expect this asset class
to account for the largest increase in alternative

dollar flows for corporate pension portfolios.
n
For public funds, the main issue of concern is consistently delivering required returns to meet benefit
obligations over the long term, leading to a sharp
focus on improving risk-adjusted performance of
the overall portfolio. As a result, the current posture of public funds toward alternatives is more
active than for corporate plans, particularly as they
diversify beyond real estate and catch up with corporate allocations to absolute return/hedge funds.
I n absolute return/hedge funds, our survey indicates that public funds will show strong growth
among new and existing investors in this asset
class.
P
rivate equity will also show strong growth,
driven by increasing allocations from public
funds currently investing in the asset class.
F or real estatea longtime anchor of public
funds alternative portfolioswe expect average
allocations to remain flat, with a shift toward
international and global investments.
I nfrastructure will be a growth area, as public
funds work to diversify their sometimes large
real estate holdings with other real assets.
G
reen/sustainable is also growing rapidly, albeit
from a small base, with a participation rate
expected to nearly triple by 2010.
F inally, GASB accounting for Other Postemployment Benefits (OPEB) is in transition,
and at the time of our survey, there was a great
deal of uncertainty around whether, and to what
extent, these benefits would be pre-funded, as
well as the role alternatives are likely to play in
investing assets set aside for funding.
n
For Endowments and Foundations (E&Fs) the

challenge is to maintain current payouts while protecting the real value of assets. Due to their unique
skill set and experience level, E&F alternative allocations are 75% to 100% larger than those for public and corporate plan sponsors, and they have a distinct approach to alternative investing (at least
among the larger investors):
T
hey generally have a more pronounced opportunistic posture.
key findings
T
hey are typically comfortable with much higher
allocations.
S ome view portfolio components purely in terms
of alpha and beta.
VI. Growing pains

Growth continues, despite some common
concerns and constraints.
n
For E&Fs, we expect to see the following trends

over the next several years:
S trong growth in private equity, led by a 42%
increase in average allocations among E&Fs
currently investing in the asset class.
Concerns do vary to a degree across client segments:
A
slower growth rate in absolute return/hedge
fund allocations for those currently investing.
E
&Fs show the highest sensitivity to issues of
falling performance and overcrowding.
R
eal estate will be a dynamic asset class for
E&Fsreflecting their opportunistic bias.
P
ublic funds are notably more concerned about a
strain on their staffing and oversight capabilities.
I n other real assets, E&Fs are expected to continue to lead the way with the highest participation rates by far, as well as the highest rate of
new entrants.
C
orporate plans are more worried than their
counterparts about volatility, particularly with
respect to funded status.
V. Meeting expectations
Among the most frequently cited factors preventing

investment in additional alternative asset classes are
the need to obtain board approval and to gain a
greater degree of comfort/knowledge with specific
alternative investments.
While fees are not cited among the top investor

concerns, there is clearly emerging pressure on fees.
Investors believe that fees are fair as long as
For the vast majority of investors surveyed,

alternative investments are currently meeting
performance expectations, across asset classes.
n
As the number of participants in alternative markets increases, and we see larger inflows, investors
are most concerned about the potential impact on
performance. Two of the top three concerns cited by
respondents focused on declining returns and overcrowding of the alternatives space (Exhibit 13).
urrently, investors show a relatively high rate of

C
satisfaction across all alternative categories, with
E&Fs showing a slightly lower satisfaction level
overall (Exhibit 12).
Exhibit 12: Percentage of respondents indicating that performance expectations are being met
Infrastructure
(14)
(5)
(1)
(8)
Commodities
(31)
(5)
(3)
(23)
100
100
100
100
97
96
94
(108)
Real estate (38)
(33)
(32)
88
(75)
Absolute return (23)

strategies (10)
90
(38)
88
(84)
(27)
Private equity (15)
(39)
85
(38)
84
88
90
Total (175)
97
97
Public funds (45)

E&Fs (56)
92
92
93
87
87
(77)
Hedge funds (26)

(10)
91
100
100
Most commonly mentioned benchmarks

Infrastructure: No clear benchmark
Commodities: CPI plus 500 bps
Real estate: NCREIF Index
Absolute return: T-bills plus 400600 bps
Private equity: S&P plus 300500 bps
Hedge funds: T-bills plus 300600 bps
I am going to read you a list of asset classes and would like you to tell me what long-term (10 to 15 years) return benchmarks your plan applies to each asset class,
and whether they are currently meeting performance expectations. Respondent base is in parenthesis.
key findings
performance expectations are met, which should be

a red flag to managers that there could be a backlash on fees, or a greater demand for performancebased fee schedules, should performance start to lag
expectations (Exhibit 14).
Within specific investor segments:

P
ublic funds showed the highest absolute
sensitivity to fees.
E
&Fs were by far the strongest advocates for
charging fees per unit of alpha.
Exhibit 13: Greatest concerns as alternatives become more popular with respect to managing portfolios in the current market environment
% of total respondents citing
23
Falling returns/performance
15
Liquidity
Overcrowding of space
13
No concerns
11
Risk
10
Quality managers/tools
10
Staffing/oversight capabilties
Transparency
Volatility
7
6
Fees
Valuations
Accounting concerns
3
3
3
Blow up/melt down

Counterparty relationship
Global recession
1
1
Other
13
As alternative investments become more popular, what is your greatest concern with respect to managing your plan assets/portfolio in the current market
environment? Multiple responses accepted. Respondent base = 176.
Exhibit 14: Emerging pressure on fees

% of respondents
33
Fees are fair, as long as
return expectations are met
31
40
20
21
Fees should be viewed on a

per unit of alpha basis
Our plan is quite comfortable

with fees charged for
alternative strategies
36
30
29
Fees charged for alternative

investments are too high
Fees are coming down, but

our fund is still hesitant to
implement
34
19
13
9
2
4
4
4
30
5
Total (175)
Public funds (45)
E&Fs (56)
Which one of the following statements best describes your view of fees charged to manage alternative strategies? Respondent base is in parenthesis.
PART 1. analysis
by asset class
Preface
While no one should be surprised that overall use of
alternatives is quite highand still growingour
survey did uncover some unexpected trends within
this overall growth story:
n
Within

our survey base, the largest dollar flows
into absolute return/hedge fund strategies over the
next several years are expected to come from public
funds.
Real

estate should see significant inflows from E&F
investors, who also plan large increases to private
equity allocations.
Newer

categories of alternativese.g., infrastructure and other real assets, green/sustainable, portable alpha and net long equity (130/30)all show
strength and will see significant increase in usage
by 2010.
A
substantial shift toward international and global
assets is taking shape in real estate and, to a somewhat lesser extent, in private equity.
In addition, as alternatives become an essential part of

institutional portfolios, there is a steady blurring of
lines as to what constitutes an alternative and in
which asset-allocation buckets different strategies
belong. For example, equity 130/30 strategies, while
hedge fund-like in their use of shorting, are most

often categorized as traditional equity. Infrastructure
could fall into private equity or real estate, depending
on the underlying asset and type of fund used to
access it. Real estate itself is increasingly bucketed
under real assets. And green/sustainable could be
classified as infrastructure (e.g., power projects), long
only (e.g., eco-friendly stocks), or even real estate
(e.g., green building funds).
As the use of alternatives continues to grow, these
strategies will open new possibilities for investors to
rethink traditional notions of both asset class and asset
allocation. And we believe that alternatives will continue to present greater opportunity to add alpha
through new approaches to efficient portfolio design.
The following asset-class discussions provide
details of how these growth and diversification
trends are playing out within specific segments
of the alternatives market:
A. Absolute return/hedge funds

B. Private equity
C. Real assets: Real estate
D. Real assets: Infrastructure
E. Real assets: Other
F. Portable alpha
G. Net long (130/30)
H. Green/sustainable
ANALYSIS BY asset class: absoulute return / hedge funds
Absolute Return/Hedge Funds

Absolute return/hedge funds are the youngest
of what could be called traditional alternative
asset classesi.e., real estate, private equity,
absolute return/hedge funds. As such they
show the lowest overall participation rate, as
corporate and public pension plans steadily
ramp up their exposure. But thanks to relatively
higher liquidity and the ability to diversify
across a range of strategy types, these strategies also show the highest average portfolio
allocation of any alternatives categoryacross
existing investors in this asset class, as well as
across total survey respondents. Clearly, for
those that use these strategies, they are an
essential portfolio component.
Exhibit 15: Percentage of respondents investing or planning to

invest in absolute return/hedge funds by 2010
Over the next few years we expect to see

dynamic growth in absolute return/hedge funds
from a number of sources. It is one of the few
asset classes expecting strong growth from both
new investors adding these strategies and existing investors increasing their allocations. This
dual-engine growth dynamic differs from other
types of alternatives, where growth is expected
to come predominantly from either existing
investors or new investors, but seldom from a
more balanced combination of both.
Exhibit 16: Average allocations among current absolute return/

hedge fund investors
% of respondents
Investing
Planning to
2007
15.6
10
13.4
16
13
98
11.5
8.5
9.6
7.4
59
Total
(180)
18.1
2010
41
42
Corporate
(75)
Public
(50)
E&Fs
(53)
Total
(89)(77)
Corporate
(27)(24)
8.9
Public
(18)(17)
E&Fs
(37)(35)
Exhibit 17: Average allocations to absolute return/hedge funds

among all respondents
Exhibit 18: Percentage of current absolute return/hedge fund

investors planning to increase (decrease) allocations by 2010
% of respondents

2007
2010
16.3
Increasing
14.1
53
9.3
Decreasing
60
54
45
7.4
4.5
Total
(129)(116)
5.8
Corporate
(52)(47)
5.8
3.9
Public
(34)(28)
E&Fs
(40)(40)
Averages reflect investors and non-investors. Respondent base is in

parenthesis.
10
-7
Total
(103)
-7
Corporate
(29)
Public
(20)
-8
E&Fs
(50)
Growth highlights in absolute return/hedge funds:
By 2010, we expect the reverse to be true for absolute return/hedge funds, with public funds showing:
A
bsolute return/hedge funds are expected to
account for over 40% of net new dollars invested
in alternatives by survey respondents in the next
three years.
the largest percentage planning to invest

t he largest percentage of existing investors
increasing allocations (with no decreases)
A
rapid rate of increase is expected in the percentage of corporate and public plans using this
asset class: +30% and +35%, respectively, by
2010 (Exhibit 15).
t he fastest rate of allocation increase across all

investor segments
p articipation rates exceeding that of corporate
plans
A
llocations should increase at a rate of 13%
to 20% among current investors (Exhibit 16),
and 16% to 49% across total respondents
(Exhibit 17), with public funds showing the
fastest rate of allocation increase.

E&Fs
still show a healthy appetite for further
allocations to absolute return/hedge fund strategies,
despite a near 100% participation rate and allocation rates substantially higher than other investor
segments. More than half of E&Fs are targeting still
higher allocations, with expected allocations among
current investors to exceed 18% of total portfolio
assets by 2010 (Exhibit 16).
investors cite a common need to improve riskAll

adjusted portfolio performance as a chief driver of
allocations to absolute return/hedge fundsdescribed
variously as increased diversification, volatility
reduction, and/or return enhancement (Exhibit 19).
M
ore than half of current investors plan to
increase allocations (Exhibit 18)again, with
public funds showing the strongest increases.
n

Public
funds are expected to be the most dynamic
investors and a key driver of asset flowsa surprising result when compared with our 2005 survey
results for hedge funds. In the earlier survey, public
funds trailed corporate plans in participation (10%
versus 30%) as well as in existing investor allocations (4% versus 5% of overall portfolio assets).1
Exhibit 19: Most frequently cited reasons for increasing allocations to absolute return/hedge funds
% of respondents
48
Diversification/
decrease volatility
50
35
24
Increase return
39
15
Improve risk/return
5
17
15
Decrease
fixed Income/equity 0
5
15
19
Increase fixed income,

liability/regulatory 0
0
Available 0
opportunities

Public funds (18)
6
12
E&Fs (26)
What is driving these allocation changes to absolute return/hedge funds? Multiple responses accepted. Respondent base is in parenthesis.
JPMorgan Asset Management New Sources of Return Survey, 2005

11
Top 3 challenges are also seen differently across

investors. Though transparency is cited as the
top challenge for all investors, E&Fs differ markedly from corporate and public pension plans on
other issues (Exhibit 21).
individual investor segments show different

But
preferences and sensitivities in how they access these
strategies:
V
ehicle preferences show clear distinctions
among investor segments (Exhibit 20):
E
&Fs showed the least sensitivity to fees and
&Fs use single manager funds most oftena
E
the highest sensitivity to manager access.
possible reflection of their longer experience
and higher degree of confidence with these
Corporate and public plans showed much
types of strategies.
higher sensitivity to fees and headline/reputation risk.
Corporate and public plans, by comparison,
use fund-of-funds vehicles when accessing
Public funds showed the most concern about
multi-strategies, but use single managers for
board approval.
single strategies. This could be a reflection of
Lock-ups longer than one year affect investor
a preference for core/satellite approaches. In
decisions to varying degrees across segments
addition, fund-of-funds can be an efficient
(Exhibit 22). Here again, we see the established
way for new investors to establish a diversified
pattern of E&Fs showing the greatest flexibility.
portfolio, gain access to top managers and
Corporate plans showed the most cautious
accomplish their due diligence in a less
approach, with public funds in the middle.
resource-intensive wayimportant considerations for these investor segments, which have
low participation rates and a high number of
new investors adding this asset class.
Exhibit 20: Percentage of respondents currently investing or planning to invest in absolute return/hedge funds via...
% of respondents investing
or planning to invest
Currently investing
Planning to
15
37
2
27
10
24
Single manager,
single strategy
34
58
17
5
0
28
Single manager,
multi-strategy
48
7
Fund-of-funds,
single strategy
17
45
Fund-of-funds,
multi-strategy
2
14
10
3
2
Public funds (29)

E&Fs (52)
Does your plan currently/plan to access absolute return/hedge funds via Multiple responses accepted. Asked of those currently investing or planning to invest
in absolute return/hedge funds. Respondent base is in parenthesis.
12
Exhibit 21: Top three challenges to investing in absolute return/hedge funds

% of respondents citing...
45
37
Transparency
46
25
High fee
arrangements
24
11
21
Headline risk/
reputation risk
24
11
11
15
Liquidity
19
Access to
top-performing
managers
7
2
30
9
Resources and
expertise
10
24
9
Public funds (41)
Board approval
20
E&Fs (54)
What are the top three challenges you face when considering investments in absolute return or hedge funds? Asked of all respondents. Multiple responses
accepted. Respondent base is in parenthesis.
Exhibit 22: Would you invest in an absolute return/hedge fund strategy with a lock-up longer than one year?
Public funds
Corporate plans
E&Fs
No 18%
No 33%
No 56%
Yes 44%
Yes 68%
Yes 82%
(Based on 61 respondents)
Have you invested or would you consider investing in funds requiring a lock-up longer than the typical one year? Asked of all respondents.
13
ANALYSIS BY asset class: PRIVATE EQUITY
Private Equity
Private equity, a more traditional alternative,

shows strong participation within each investor
segment. Overall participation in this asset
class (across all respondents) is on par with
real estate, a longtime staple of alternative
portfolios.
Private equity also shows a high percentage
of current investors (62%) planning to increase
their allocationsthe highest percentage of
any alternative asset class. As a result, private
equity can be expected to see strong growth
over the next several years, due to substantial
inflows from existing investors as they manage
the impact of the private equity cycle (commitments, investments, distributions) on reaching
target allocations.

invest in private equity by 2010
% of respondents
Investing
Planning to
7
Growth highlights in private equity:
E
&F investors currently lead the way with
nearly 100% participation in this asset class
(Exhibit 23), the largest average allocations, and
the greatest expected allocation increase (+42%)
by 2010more than double the rate of increase
for corporate or public fundsboth for current
investors in this asset class, and across all survey
respondents (Exhibits 24, 25).
P
ublic pension plans are not far behind E&Fs,
however, with a participation rate of 76% and
nearly a third of non-investors adding this asset
class by 2010 (Exhibit 23). In addition, public
funds have the highest percentage of current
investors planning to increase allocation by 2010
(Exhibit 26).
Additionally, while public fund allocations are
expected to grow 18% by 2010less than half
Exhibit 24: Average allocations among current private equity

investors
2007
10.5
8.6
76
75
2010
93
6.6
7.8
6.6
6.6
7.4
5.6
63
Total
(178)
Corporate
(71)
Public
(46)
E&Fs
(54)
Corporate
(33)(29)
Public
(25)(18)
E&Fs
(35)(33)
Exhibit 25: Average allocations to private equity among all

respondents
Exhibit 26: Percentage of current private equity investors

planning to increase (decrease) allocations by 2010
% of respondents
2007
2010
4.9
Total
(126)(112)
Increasing
9.1
Decreasing
75
6.5
6.4
5.2
4.3
Corporate
(50)(46)
4.4
62
5.1
Public
(32)(25)
E&Fs
(40)(38)
Averages reflect investors and non-investors. Respondent base is in

parenthesis.
14
Total
(94)(81)
-5
Total
(125)
61
52
-5
Corporate
(44)
-6
Public
(32)
-4
E&Fs
(46)
as much as E&Fspublic fund respondents

portfolios are, on average, more than four times
larger. So private equity should see substantial,
and perhaps even greater dollar flows from
public funds than from E&Fs.
E
&Fs show the greatest comfort and diversification abroad (Exhibit 27), with the highest participation rate in every category except international developed. They are much more comfortable with Asia/Pacific markets, and significantly
more open to global strategies. This is not surprising given E&Fs overall expertise with alternatives and their need for diversification as their
alternative portfolios continue on a rapid growth
trajectory.
C
orporate plans have higher allocations, on
average, than public funds and a comparable
rate of allocation increase among current investors (Exhibit 24). But corporate plans also show
the lowest participation rate in private equity
(Exhibit 23) and the lowest percentage of
current investors planning allocation increases
(Exhibit 26). We believe this posture is consistent with their cautious overall approach to alternatives over the next several years.
n
C
orporate and public plans, by comparison, show
a preference for Europe and other international
developed markets. However, corporate plans
appear to be diversifying more quickly into Asia/
Pacific and emerging markets.

International
allocations are strong and expected to
growwith an average non-U.S. allocation of 17%
of private equity portfolios, across all current
investors.

Where
fund vehicles are used to access private
equity, investor choices are similar to those for
hedge fundswith corporate and public funds
using fund-of-funds vehicles for multi-strategy
funds, and single managers for single strategies,
E&Fs have a clear preference for single manager
funds (Exhibit 28).
Exhibit 27: Percentage of respondents currently investing or planning to invest in private equity in...
Currently investing
Planning to
40
Europe
42
11
50
8
25
Asia/Pacific
13
8
4
50
18
17
3
2
15
Global
31
International
developed
3
6
35
19
Emerging markets
Public funds (38)
0
21
E&Fs (52)
Where, other than the U.S., does your plan currently or plan to invest in the future in private equity? Asked of respondents currently or planning to invest in private
equity. Multiple responses accepted. Respondent base is in parenthesis.
15
Exhibit 28: Percentage currently investing or planning to invest in private equity via
Currently investing
Fund-of-funds,
multi-strategy
Fund-of-funds,
single strategy
4
55
31
11
0
27
Single manager,
single strategy
Single manager,
multi-strategy
Planning to
46
2
5
26
58
19
11
4
8
38
17
16
2
0
3
23
Public funds (38)

E&Fs (52)
Does your plan currently/plan to access private equity funds via Respondent base is in parenthesis.
[What is driving our allocation increase to private equity is] diversification,

liquidity premium, enhanced returns ... [We are looking at] venture, small
and medium-size buyouts. Endowment
16
ANALYSIS BY asset class: REAL ESTATE
REAL ASSETS: REAL ESTATE
Real estate is the most commonly used alternative asset class, with overall participation rates
slightly higher than private equity. And somewhat surprisingly, the survey showed no overall
pullback from real estate, despite recent market
turmoil (this survey was conducted during the
first quarter of 2008).
In fact, more than a third of non-investors indicated that they would be adding this asset class
by 2010, and allocations should see a slight
increaseboth across current investors and all
respondentsdriven primarily by inflows from
E&Fs. Within this trend, however, there is a significant shift expected toward non-U.S. assets,
across all investor segments, led by corporate
plans and E&Fs.

invest in real estate by 2010
% of respondents
Currently invest
4
Plan to invest
E
&Fs, which have the lowest overall allocations
to real estate (Exhibits 30, 31), are expected to
show the greatest rate of increase over the next
three years, with a strong international emphasis
and a reduction in the U.S. share of real estate
portfolio assets.
A
mong public fundsthe largest group of
real estate investorsallocations are expected
to remain flat among current investors (Exhibit
30), as well as among all public fund respondents (Exhibit 31).
C
orporate plans are anticipating slightly higher
overall allocations (Exhibits 30, 31), but still
have the lowest participation rate (Exhibit 29)
and the lowest percentage of current investors
planning allocation increases (Exhibit 32).
Exhibit 30: Average allocations among current real estate investors

2007
2010
13
9
10
6.6 7.0
90
76
Total
(182)
Growth highlights in real estate:
6.6 6.8
7.5 7.4
6.8
5.4
79
63
Corporate
(72)
Public
(48)
E&Fs
(53)
Total
(101) (88)
Corporate
(35) (31)
Public
(34) (27)
E&Fs
(29) (27)
Exhibit 31: Average allocations to real estate among all

respondents
Exhibit 32: Percentage of current real estate investors

increasing/(decreasing) allocations by 2010
2007
2010
% of respondents
Increasing
7.2 7.3
5.1
5.8
Total
(130) (116)
4.5
5.4
5.0
Corporate
(52) (47)
3.9
Public
(35) (28)
E&Fs
(40) (38)
Averages reflect investors and non-investors. Respondent base is in parenthesis.
Decreasing
60
46
44
32
-10
Total
(125)
-13
Corporate
(38)
-10
Public
(39)
-8
E&Fs
(40)
17
ANALYSIS BY asset class: REAL ESTATE

E&F
investors are expected to make a substantial
commitment to real estate over the next several
years. We believe that E&Fs large anticipated
commitment to real estate reflects their generally
more opportunistic posture. Over the next three
years, E&Fs will have:
t he largest percentage of current investors

increasing allocations (Exhibit 32)
n
t he highest percentage of new investors, with

more than 60% of E&F non-investors adding
real estate to their portfolios (Exhibit 29)
a participation rate nearly equaling public funds
by 2010
t he largest allocation increases of any investor
segment: +26% among current investors and
+38% across all E&F respondents (Exhibit 30, 31)
A strong global diversification trend is expected.
R
eal estate investors currently show a strong bias
toward domestic U.S. assetswith E&Fs showing less domestic reliance than other investors
(Exhibit 33). But survey data suggests that this
will change dramatically over the next several
years, with a greater percentage of investors
investing abroad (Exhibit 33). Additionally,
international and global shares of both real estate
and REIT portfolios are expected to increase
significantly (Exhibits 34, 35).
Exhibit 33: Percentage of respondents currently investing or planning to invest in real estate in
Currently investing
77
U.S.
49
15
Continental
Europe
International
developed
19
18
10
12
Global
13
12
Canada
8
13
13
8
10
11
10
10
9
4
6
U.K.
Asia/Pac
Emerging
markets
22
4
12
20
2
2
10
8
13
18
2
78
4
7
12
Planning to
2
8
Public funds (45)
E&Fs (49)
Where does your plan currently or plan to invest in real estate? Asked of respondents currently investing or planning to invest in real estate. Multiple responses
Exhibit 34: Expected net change in percentage of direct real

estate portfolio allocated to
Global
International
Corporate (39)
Public (32)
E&F (29)
U.S. domestic
3.6
-4.4
1.9
-11.5
1.8
-8.3
6.8
Global
Corporate (14)
9.0
E&F (16)
International
-1.8
U.S. domestic
1.0
12.3
3.0
2.9
5.1
Public (26)
3.7
What percentage of your direct real estate portfolio (ex-REITS) is currently

invested in or do you plan to invest in (region) by 2010? Asked of respondents
currently or planning to invest in direct real estate and/or REITs. Respondent
base is in parenthesis.
18
Exhibit 35: Expected net change in percentage of REITs portfolio

allocated to
-14.6
10.6
11.1
What percentage of your REITs portfolio is currently invested in or do you plan

to invest in (region) by 2010? Asked of respondents currently or planning to
invest in direct real estate and/or REITs. Respondent base is in parenthesis.
ANALYSIS BY asset class: INFRASTRUCTURE
REAL ASSETS: INFRASTRUCTURE
Growth in this asset class is expected to be

strong, with the overall participation rate among
institutional investors doubling by 2010, led by
a high rate of new corporate plans and public
funds adding this asset class. In addition, more
than half of current investors expect to increase
allocations.

Despite
strong growth, infrastructure still poses
challenges for investors:
I nvestors show wide disparity in how infrastructure is classified in terms of asset allocation
(Exhibit 37), i.e., as private equity, real assets,
fixed income, or its own discrete asset class. We
believe that such wide variations result from the
diversity in underlying assets and vehicles used
to access infrastructure opportunities.

Strong
growth is expected from new investors
In addition, a large percentage of respondents
among corporate plans and public funds (Exhibit 36):
indicated that they lack familiarity and comfort
with these strategies, which suggests that asset
Public funds will lead infrastructure investing;
managers will be required to provide more inveswe believe that this strong growth reflects a need
tor education and support for overall growth in
to diversify large real estate holdings with other
this asset class to continue (Exhibit 38).
real assets. Corporate plans will see similar
growth, driven largely by diversification needs,

as well as the long-term, bond-like profiles of
core infrastructure investments.

invest in infrastructure by 2010
E
&Fs currently have the highest participation
rate in infrastructure investing, but results suggest growth in this investor base could slow
perhaps reflecting a need for non-investors to
gain more knowledge of and comfort with these
investments.
Investing
% of respondents
Planning to
3
14
17
16
21
13
Total
(152)
10
11
Corporate
(69)
Public
(46)
E&Fs
(29)
Exhibit 37: How do investors classify infrastructure?

% of respondents classifying
infrastructure as...
22
32
Real assets
42
28
14
Private equity
38
14
Real estate
23
13

17
Fixed income
Public funds (22)
9
4
E&Fs (24)
31
Other
17
45
To which asset class does/would your plan (be likely to) allocate infrastructure investments? Asked of all respondents. Respondent base is in parenthesis. Multiple
responses accepted.
19

North
America will see the lions share of inflows
into infrastructure investment (Exhibit 39)unlike
real estate where we see a clear global diversification
trend. However, investors cite global capabilities
as one of their top criteria when evaluating infrastructure managers, suggesting that this initial
domestic bias may reverse (as it has in real estate)
as investors comfort and expertise increase.
losed-end funds are expected to be the most comC

monly used vehicle (Exhibit 41):
A
n approximately equal percentage of investors
plan to add closed-end funds and open-end funds.
H
owever, closed-end funds will continue to have
much higher overall usage46% for closed-end
funds versus 25% for open-end funds. We believe
that this bias could be a function of availability,
with the asset management industry currently
offering largely closed-end investment vehicles.

Investors
share a strong opportunistic view of infrastructure (Exhibit 40):
N
ot surprisingly, E&Fs show the strongest bias
toward opportunistic strategies.
O
nly an additional 5% of respondents plan to
add direct infrastructure investments to their
portfoliosperhaps not surprising given investors stated lack of familiarity and comfort with
this asset class.
C
orporate plans, by comparison show the lowest
preference for opportunistic strategies and the
highest preference for debt-like strategies, possibly a reflection of their emphasis on managing
surplus volatility.
Exhibit 38: What is preventing investment in infrastructure?

% of respondents citing
23
Lack of knowledge/
comfort
54
44
8
Plan/board policy
18
2
8
Lack of liquidity
5
15
6
Less potential for

higher return
5
15
13
Risk
5
5
4
5
High volatility
10
High correlation to
other assets
6
5
2

Public funds (22)
E&Fs (41)
What are the top two reasons preventing your plan from investing in infrastructure strategies? Asked of all respondents not currently or planning to invest in
infrastructure. Respondent base is in parenthesis.
20
Exhibit 39: Where will investors invest in infrastructure?

% of respondents
planning to invest in...
North America
65
Global
26
17
Emerging Markets
Asia/Pacific
13
Europe
13
Int'l Developed
13
9
Other
Geographically, where will you be investing in the future in infrastructure Asked of all respondents currently or planning to invest in infrastructure. Respondent
base = 23. Multiple responses accepted.
Exhibit 40: What type of infrastructure investments are of greatest interest?

% of respondents likely to invest in...
42
Opportunistic
53
83
35
20
Existing
39
23
Development
(New)
33
39
31
Debt-like
22
23
Other
Public funds (15)
27
0
E&Fs (23)
Based on your risk/return objectives, which of the following would your plan be likely to invest in, in the future? Asked of all respondents. Respondent base is in
parenthesis. Multiple responses accepted.
Exhibit 41: How are investors currently accessing (planning to access) infrastructure?
% of respondents
Closed-end funds
28
Open-end funds
10
Direct investments
Listed infrastructure
securities
18
15
13
Currently accessing
Planning to access
Does your plan currently or plan to access infrastructure via...? Asked of all respondents currently or planning to invest in infrastructure. Respondent base = 40.
Multiple responses accepted.
21
ANALYSIS BY asset class: OTHER real assets
REAL ASSETS: OTHER

(Commodities, oil & gas, timber/
farmland, maritime, and precious metals)
While just over a third of all respondents say
they invest in other real assets (commodities,
oil & gas, timber/farmland, maritime and precious metals), that figure can be a bit misleading, because E&F investors are far more active in
this asset class than either corporate plans or
public funds. Moderate growth can be expected
over the next several years, driven predominantly by existing investors increasing their
allocations.
n

E&F
investors should drive most of the growth in
this asset class given that:
E
&Fs have the highest participation rate of any
investor segment (Exhibit 42).
N
early a third of E&Fs not currently investing
plan to add other real assets by 2010.
n

Diversification
appears to be the primary driver of
investment in other real assets (Exhibit 43)the
other key drivers are split almost equallyincreasing returns, meeting allocation targets, and hedging
inflation.

Investors
do not show a strong preference in terms
of investment vehicles (Exhibit 44)closed-end
funds hold a slight edge (38%) with direct investments slightly lower (31%), and open-end funds
somewhat below that.

invest in other real assets by 2010
% of respondents
Investing
Planning to
75
38
30
18
Total
(175)
Corporate
(71)
Public
(46)
E&Fs
(51)
Exhibit 43: Most frequently cited reasons for increasing

allocations to other real assets
Exhibit 44: Percentage currently accessing or planning to access

other real assets via...
% of respondents
% of respondents citing...
Diversification
33
Increase in
expected
returns
11
Direct
investments
Meet target
allocation
11
Primary
open-end
funds
Inflation
hedge
What is driving these allocation changes to other real asets? Asked of

respondents currently investing or planning to invest in other real assets.
Respondent base = 36. Multiple responses accepted.
22
Primary
closed-end
funds
Other
32
28
19
10
Currently accessing
Planning to access
Does your plan currently/plan to access investments in other real assets via...
Asked of respondents currently investing or planning to invest in other real
assets. Respondent base = 78.
ANALYSIS BY asset class: PORTABLE ALPHA
PORTABLE ALPHA
We include portable alpha in this survey
because these strategieswhich seek to add
alpha without changing a portfolios underlying
strategic allocationare clearly non-traditional
and often employ alternative strategies, or an
investment approach closely linked to alternatives, as the driver of alpha.
n
ey highlights for these investment strategies

K
include:
C
orporate plans are expected to see the greatest
increase in the percentage of plans employing
these strategies, with participation rates nearly
doublingto over 50% by 2010.
P
ublic funds have the highest participation rate
thus far, but that could slow in the near term, as
many public funds are considering employing
these strategies, but have not yet committed to
implementing them (Exhibits 45, 46).
n
C
urrently three in 10 respondents use portable
alpha, and that figure is expected to grow by
approximately 50% over the next few years
(Exhibit 45).
F or the largest segment of potential users (corporate

plans and E&Fs) implementation of portable alpha
strategies is being driven by issues of potential
alpha generation and diversification (Exhibit 46).
Exhibit 45: Percentage of respondents using or planning to use

portable alpha by 2010
% of respondents
Using
Planning to
Considering investing*
25
26
15
15
31
28
Total
(170)
Corporate
(69)
36
28
Public
(44)*
E&Fs
(47)
* Among public funds, a very high percentage (about 25%) indicated they were
considering investing in portable alpha, but not committed to implementing by
2010. Respondent base is in parenthesis.
Exhibit 46: Most frequently cited reasons for changes to the use of portable alpha strategies
19
Potential alpha
generation
38
31
24
14
Diversification
46
5
Considering
implementing
Shifting allocations
from bonds
52
0
5
14
0
Public funds (21)

E&Fs (13)
What is driving the changes to your plans use of portable alpha strategies? Asked of those planning to increase/decrease their use of portable alpha strategies.
Multiple responses accepted. Respondent base is in parenthesis.
23
ANALYSIS BY asset class: PORTABLE ALPHA
F or the majority of portable alpha investors, U.S.

equity is the source of beta (Exhibit 47), though
over half of E&Fs using these strategies have ported
alpha over domestic fixed income.
Sources of alpha vary, with fixed income and
domestic equity the most frequently employed,
followed by hedge funds and international equity.
What is driving [our use of portable alpha] is low interest rates

and more alpha octane on the bonds. Corporate plan
Exhibit 47: What sources of beta are being used in portable alpha strategies?
78
U.S. Equity
77
84
36
Domestic
Fixed Income
29
68
14
International
Equities
13
21
2
Other
16
5
Public funds (31)

E&Fs (19)
Source: Greenwich Associates annual survey of plan sponsors and endowments with over $1billion in total plan assets. Multiple responses accepted. Respondent
24
ANALYSIS BY asset class: NET LONG (130/30)
NET LONG
pproximately one quarter of respondents use these

A
strategies, with reasonably strong growth expected
among both corporate plans and public funds
(Exhibit 49).
Shorting was cited by respondents as the top

reason preventing them from using net long strategiesciting risk of using short strategies and
track record/experience of the manager in using
short strategies.
I nvestors showed approximately equal interest in

both fundamental and quantitative strategies, as
well as both international and domestic strategies.
(e.g., 130/30 strategies)

Only a minority of respondents (29%) consider
net long (130/30) strategies an alternative.
The vast majority include these strategies in
their long only allocations (Exhibit 48). We
included them in this study because they are
generally less benchmark-constrained, and they
rely on approaches philosophically close to
alternatives (e.g., shorting).
The way we look at [net long (130/30) investing is that it]

frees up the manager to more fully access their capabilities.
Getting more out of the dollar we invest. Public fund
Exhibit 48: Most respondents classify net long (130/30)

strategies as part of long-only assets

invest in net long (130/30) equity strategies by 2010
Investing
% classifying as part of...
Planning to
6
29% Alternative
investments
allocation
14
10
30
24
21
23
Corporate
(71)
Public
(44)
71% Long only

allocation
Total
(173)
Where do you allocate net long (130/30) strategies? Asked of respondents

investing in net long (130/30) strategies. Respondent base = 63.
E&Fs
(49)
25
ANALYSIS BY asset class: GREEN/SUSTAINABLE
Green/sustainable
Green/sustainable investing is showing
surprising strength, especially among E&F
investors and public funds. Key highlights for
this non-traditional thematic investment
approach include:
n
&Fs have led the way thus far, with 27% of

E
respondents investing and another 6% planning
to invest in green strategies, bringing the total to
a third of E&F investors (Exhibit 50). New E&F
investors, however, are expected to be few in the
near term.
ublic funds, by contrast, will be the engine of

P
growth, nearly tripling their participation in green
investing by 2010. The increase is likely due, in
part, to a concerted effort by some state officials
to channel more funding toward this area.
orporate plans will double their participation rate

C
for this category but are starting from a small base
and are expected to be slower in moving into these
strategies (Exhibit 50).
he most popular approach to green investing is

T
through direct private investment (Exhibit 51),
with closed-end funds expected to gain ground,
and open-end funds used only rarely.
We are invested in infrastructure that focuses

on green/sustainable. Endowment
There is a social aspect to this ... you have to weigh the social
against the fiduciary responsibility ... Public fund

invest in green/sustainable strategies by 2010
Investing
Planning to
6
Direct private
investments
27
Primary
closed-end
funds
Primary
open-end
funds
Both open
and closedend funds
19
11
7
12
Total
(148)
7
Corporate
(67)
26
10
Public
(42)
Exhibit 51: Percentage of respondents accessing or planning to

access green/sustainable strategies via
E&Fs
(33)
Other
18
12
15
9
3
6
12
Currently accessing
Planning to access
Does your plan currently/plan to access green/sustainable investments via

Asked of all respondents investing or planning to invest. Respondent base = 34.
PART 2. analysis by
INVESTOR SEGMENT
Preface
As with the discussion of asset class growth, we begin
by noting that no one should be surprised that institutions are committed to increasing their overall portfolio allocations to alternatives. There are, however,
some notable results within the overall growth story
that highlight the flexibility of alternatives to meet
specific investor needs:
n
Corporate

plans, though more cautious than other
investors, still plan steady increases in alternatives
to meet their need for diversified sources of return.
This need goes hand-in-hand with their efforts to
increase fixed income allocations and durations in
order to manage interest rate risk, while decreasing
and diversifying equity exposure to manage the volatility of returns. Increasing exposure to absolute
return/hedge funds, implementing portable alpha
strategies and taking advantage of the debt-like
nature of long-term infrastructure investments can
be expected to play a significant role in their efforts
to meet benefit obligations while managing surplus
volatility.
Public

funds, challenged to meet their long-term
benefit obligations by consistently generating
required returns, appear to be moving quite quickly
to diversify and expand their alternative portfolios
(traditionally heavily weighted toward real estate).
This effort will be led by a substantial move into
absolute return/hedge funds. Additionally, public
funds will be one of the strongest drivers of a wide
range of newer alternativese.g., infrastructure and
other real assets, portable alpha, net long (130/30),
and green/sustainable investments.
E&F

investors, generally less constrained in their
investment policies than other institutions, are still
ratcheting up their alternative allocationsto well
over a third (36%) of portfolio assets by 2010
despite already having the highest participation
rates and highest allocations across a majority of
alternative asset classes. Some E&Fs even say there
is no limit to how high those allocations could go.
These investors are looking for opportunistic investments and new ways to diversify their alternative
sources of returnand to maintain performance of
their portfolios, even as the alternatives marketplace
becomes more crowded.
The different demands, experience levels, resource

constraints and organizational challenges facing each
investor segment are driving different alternative
strategy choices and rates of adoption.
The following discussions provide details about
how these growth and diversification trends are
playing out within specific client segments.
A. Corporate pension plans

B. Public pension funds
C. Endowments & foundations
27
ANALYSIS BY investor segment: corporate pension plans
Corporate Pension Plans

Corporate pension plans anticipate steady
increases in alternative allocations, particularly
in private equity and absolute return/hedge
fundswhere average allocations across all corporate plan respondents are expected to increase
by 21% and 29% respectively, by 2010.
However, despite this steady progress, corporate plans
appear to be more cautious in expanding their alternative allocations than public funds or E&Fs. On average, corporate plans will have the lowest total alternative allocations, and a majority of corporate plan sponsors say that a 20% to 30% overall portfolio allocation
to alternative assets is too high (Exhibit 52). In addition, corporate plans show the lowest percentage of
current investors increasing allocations to major
alternative asset classes (absolute return/hedge funds,
private equity, real estate).
Exhibit 52: Corporate plans view of a 20% to 30% allocation to

alternatives
% corporate respondents (68)
Too high?
53%
Just right?
40%
Too low?
7%
We believe this cautious posture is driven primarily

by regulatory and accounting reforms (e.g., the Pension Protection Act, SFAS 158, an anticipated Phase
II to the FASB pension accounting project, and FSP
SFAS 132(R)-a), which address a range of issues, such
as: minimum funding requirements, corporate balance sheet impacts, income statement presentation,
and disclosures. These on-going reforms will continue
to pose a two-pronged challenge for corporate plan
sponsorscontrolling the impact of the plan on corporate financials, while still earning returns sufficient
to meet benefit obligations.
To address their unique situation, corporate plan
sponsors are continuing to decrease traditional equity
allocations while significantly increasing fixed income
allocations (Exhibit 53). Allocations, however, dont
tell the whole story.
Corporate plans expect to implement a large shift
in duration within their fixed income portfolios
(Exhibit 54). While duration shifts have been accomplished in the past largely through investing in longer
duration cash bonds, nearly half of corporate plans
intending to change duration are considering using
swaps to synthetically implement the change
(Exhibit 55).
The notable issue raised by these shifts is that corporate plan sponsors are deeply engaged in the process of
managing their pension plans funded status volatility
in a rapidly changing regulatory environment. We see
their more cautious approach to alternatives as related
to these challenges.
Would you say a 20% to 30% asset allocation to alternatives is.... Asked of
all respondents. Respondent base is in parenthesis.
Exhibit 53: Corporate plans are shifting to fixed income and

alternatives
% of assets
100%
80
11
26
13
30
60
40
33
Alternatives
Fixed Income
Duration, in years
14
All corporate plans (69)
12
57
2004
2007
(64)
(62)
52
Public funds (27)
10
2010
(56)
9.4
7.4
6.7
Total Equity
6
12.4
Corporate plans extending (25)
63
20
28
15
Exhibit 54: Corporate plans expect to significantly extend fixed

income duration
6.6
5.7
5.3
Duration
12 months ago
5.4
Current
duration
5.7
Expected future
duration
How we run the asset side is driven by what is going on

in the regulatory environment, condition of our balance
sheet and volatility. Corporate plan
We are in the process of extending the duration of our fixed income

portfolio. We are trying to get the duration of our fixed income portfolio
more in line with our underlying plan liabilities. Corporate plan
Exhibit 55: Corporate plans use of futures, swaps and turnkey products to manage duration is likely to increase
% of respondents
Shift to longer duration bonds,
without changing total fixed
income allocation
46
45
29
Increase total fixed

income allocation
31
11
Swaps to synthetically
change duration
48
Futures to synthetically
change duration
Turn-key product to change

duration, while enhancing alpha
(e.g., portable alpha)
21
% who used in the past (28)
17
% likely to use in the future (29)
Which one of the following approaches were used to extend the duration of your plans fixed income assets? Asked of corporate plans whose duration had
increased vs. 12 months ago.
Which of the following approaches would likely be used to extend the duration of your plans fixed income assets? Asked of corporate plans considering shortening
or extending duration. Respondent base is in parenthesis.
29
Growth Highlights
a large number of current investors increasing
Even as they wait for clarity and finalityon issues

such as transparency, reporting, valuation, etc.our
findings suggest that corporate plans recognize the
benefits of alternatives in improving overall riskadjusted return and managing volatility. Alternatives
have played, and will continue to play, a key role in
this effort. Significant trends in this investor segment
include:
n
A
bsolute return/hedge fund strategies are
expected to see the highest corporate plan inflows
over the next three yearswith approximately 60%
from current investors and 40% from new investors. Relative to private equity and real estate, these
strategies show:
their allocations (Exhibit 59)

n
P
rivate equity is a more established portion of corporate alternative portfolios with a participation
rate roughly 50% higher than for absolute return/
hedge funds. Most inflows into private equity will
be from these existing investors, with relatively few
non-investors adding this asset class (Exhibit 56).
More than half (52%) of current investors will

be increasing private equity allocations (Exhibit 59).
In dollar terms, over 80% of growth is expected

to come from these existing investors.
A key reason for increasing private equity (in

addition to enhancing returns and diversifying
the portfolio) is to meet allocation targets
(Exhibit 60).
a higher number of new investors (Exhibit 56)

higher portfolio allocations among current investors (Exhibit 57) and, by 2010, across all
respondents as well (Exhibit 58)
R
eal estate growth will be moderate among corporate plans and, surprisingly, will see most inflows
Exhibit 56: Participation ratespercentage of corporate respondents currently investing or planning to invest in
% of respondents
Currently invest
63
Plan to invest
63
41
28
13
Absolute return/
hedge funds
(75)
10
10
Real estate
(72)
Private
equity
(71)
16
18
26
21
10
Infrastructure
(69)
Portable
alpha
(69)
Other
real assets
(71)
Net long equity

(130/30)
(71)
Green,
sustainable
(67)
Exhibit 57: Average allocations across corporate respondents

currently investing in
2007
Average allocations (%)
8.5
2010
2007
2010
9.6
6.6
Absolute return/
hedge funds
(27) (24)
7.8
Private equity
(33) (29)
6.6
5.8
6.8
Real estate
(35) (31)

30
Exhibit 58: Average allocations across all corporate respondents

for
4.5
Absolute return/
hedge funds
(52) (47)
4.3
5.2
Private equity
(50) (46)
4.5
5.0
Real estate
(52) (47)
Average allocations are calculated across all corporate respondentsincluding

investors and non-investors in the specified asset class. Respondent base is in
parenthesis.
coming from new investorswith relatively few

current investors increasing allocations, and some
planning to decrease.
Ninety-five percent of the estimated dollar
O
ne of the primary reasons cited by those planning to increase allocations to real estate was
timing and available opportunities (Exhibit 62).
n
I nfrastructurea long-maturity, high-quality

assetpresents an opportunity for further return
enhancement and diversification with 10% of corporate plans currently investing, a number that is
expected to more than double by 2010 (Exhibit 56).
P
ortable alpha is the one area where corporate
plans lead other client segments in new investor
growth. This asset class will see the sharpest
increase in participation rates for corporate plans
nearly doubling from 28% to 54% by 2010.
growth in corporate real estate investment will

come from new investorswith average allocations across all corporate respondents expected
to remain on par with private equity.
T
en percent of corporate plan respondents
(a quarter of non-investors) expect to add real
estate to their portfolios (Exhibit 56).
B
y comparison, only about 30% of current
investors are planning to increase allocations,
while 13% plan to decrease (Exhibit 59).
G
rowth across existing and new corporate real
estate investors will be lead by international/
global allocations, with the U.S. domestic share
of real estate portfolios expected to decline
(Exhibit 61).
Exhibit 59: Percentage of corporate respondents currently
investing in and planning to increase (decrease) allocations to
% of respondents
Plan to increase
Plan to decrease
52
45
Absolute return/
hedge funds
(29)
Private equity
(44)
Exhibit 60: Corporate plans most frequently cited reasons for

increasing private equity allocations
% of corporate respondents citing
Increase return
26
Diversification
(overall and PE)
Meet target
allocation
Increase alternative
allocation
Available
opportunities
32
These strategies can help address the need for diversified sources of return as allocations to equity
decline and bond portfolio allocations increase.
13
Real estate
(38)
Improve risk return
26
16
11
11
5
Other
11
Based on corporate respondents currently investing in the specified asset

class. Respondent base is in parenthesis.
Multiple responses accepted. Respondent base = 19.
Exhibit 61: Corporate plans expect further geographic

diversification of their real estate and REIT portfolios
Exhibit 62: Corporate plans most frequently cited reasons for

increasing real estate allocations
Global
Expected net change in % of real

estate (or REIT) portfolio allocated to
International
U.S. domestic
Real estate
portfolio (39)
6.8
3.6
-4.4
12.3
REITs porfolio (14)
1.0
-1.8
Percents represent the difference in the average percentage of the real estate
(or REIT) portfolio allocated to the specified region in 2010 minus the average
allocation in 2007. For respondents currently or planning to invest in real estate
and/or REITs. Respondent base is in parenthesis.
% of corporate respondents citing

Diversification
risk management
Available opportunities
(timing/specific)
35
29
Investment policy
18
Increase return
18
Inflation hedge
Overall increase
in alternatives
Other
Multiple responses accepted. Respondent base = 17.
31
ANALYSIS BY investor segment: PUBLIC PENSION FUNDS
Public Pension Funds

For public funds, the main issue of concern is
consistently delivering required returns to meet
benefit obligations over the long term. The vast
majority of plans (over 75%) are currently underfunded, leading to an even sharper focus on
improving risk-adjusted performance of the overall portfolio (Exhibit 63). As a result, public funds
are diversifying sources of return to improve overall portfolio performance, and alternatives are
playing an increasingly important role. A majority
of public funds (56%) now say that an overall
alternatives allocation of 20% to 30% is either
just right or too low (Exhibit 64).
Overall alternative allocations are expected to increase
from 15.6% to 18.1% of total portfolio assets between
2007 and 2010, a gain of 16%. This increase in alternatives is being balanced by a slight decrease in traditional assets, primarily equities (Exhibit 65).
In addition, the diversification theme carries

through to public funds approach to investing in
alternatives: they are becoming increasingly active in
asset classes where they have not historically had high
participation. Absolute return/hedge funds will see a
large percentage of new investors adding these strategies, as will some of the newer asset classes, such as
infrastructure, net long (130/30), and green/
sustainable.
The goal of improving risk-adjusted portfolio performance is evident across multiple questions in the survey. For example, in both absolute return/hedge funds
and private equitywhich will see the largest dollar
inflows from public fundsrespondents cite performance and diversification among the most important
factors driving allocation changes to both of these
asset classes (Exhibits 66, 67).
Exhibit 63: The majority of public funds are underfunded

% of public funds, by funded statusyear-end 2007
Over 100%
Under 80%
9%
96100%
25%
16%
50%
8095%
Respondent base = 44 public funds.
Exhibit 64: Public funds view of a 20% to 30% allocation to

alternatives
Exhibit 65: Public funds are shifting toward alternatives

% of assets
% total respondents (48)
Alternatives
100%
Too high?
44%
80
Fixed Income
11
16
18
27
27
61
57
56
2004
(50)
2007
(39)
2010
(34)
28
60
40
Just right?
54%
Too low?
2%
public respondents. Respondent base is in parenthesis.
32
20
0
Total Equity
ANALYSIS BY investor segment: pUBLIC pension FUNDS
My biggest concern [with respect to managing plan assets

in the current environment] is hitting our target return with
an acceptable level of volatility and risk. Public fund
[We are] moving from fixed income to hedge funds, [seeking]

more equity-like returns with bond volatility. Public fund
Exhibit 66: Public funds most frequently cited reasons for

increasing allocations to absolute return/hedge funds
% of public fund respondents citing
% of public fund respondents citing
Diversification/
decrease volatility
50
Increase return
39
Improve risk
return
Available
opportunities
Other
17
6
17
Exhibit 67: Public funds most frequently cited reasons for

increasing allocations to private equity
30
Increase return
Meet target
allocation
Diversification
(overall and PE)
Improve risk
return
Available
opportunities
Overall increase
to alternatives
Other
30
15
10
5
5
15
33
ANALYSIS BY investor segment: PUBLIC PENSION FUNDS
Growth Highlights
In most alternative categories, public funds will have
caught up to, and even surpassed, the allocations of
corporate plans by 2010. Significant trends in this
investor segment include:
n
A
bsolute return/hedge funds is the key growth
story for public funds, with a majority of inflows
(60%) coming from new investors. Participation
rates here have increased almost four-fold (to 42%)
since our first survey in 20052 and are expected to
exceed that of corporate plans by 2010. Over the
next three years, relative to other investor segments
(see page 10), public funds will show the:
h ighest percentage of current investors planning

to increase allocations: 60% increasing, with
none decreasing (Exhibit 71).
n
P
rivate equity currently shows a high participation rate of 76% (Exhibit 68), but relatively few
new investors over the next few years. We expect
most private equity inflows from public funds to
come from existing investors: overall portfolio
allocations should increase by 18% among current
investors (Exhibit 69), and by 16% among all
public fund respondents (Exhibit 70).
R
eal estate has been the alternative of choice for
most public funds, accounting for an estimated
50% of alternative portfolios. Participation in this
asset class is approaching 100% (Exhibit 68), with
portfolio allocations remaining steady, despite current market dislocations (Exhibits 69, 70). The
dynamic growth in real estate will come from a
strong shift toward international/global allocations,
highest percentage of new investors in absolute

return/hedge funds: 16% of public fund respondents (Exhibit 68)
largest allocation increases: +20% among current
investors (Exhibit 69), and +49% across all public fund respondents (Exhibit 70).
Exhibit 68: Participation ratespercentage of public fund respondents currently investing or planning to invest in
% of respondents
Currently invest
90
Plan to invest
76
42
36
30
16
Absolute return/
hedge funds
(50)
11
Private
equity
(46)
Real estate
(48)
23
17
Infrastructure
(46)
0
Portable
alpha
(44)
Other
real assets
(46)
14
Net long equity

(130/30)
(44)
19
10
Green,
sustainable
(42)
Exhibit 69: Average allocations across public fund respondents

currently investing in
2007
2010
Exhibit 70: Average allocations across all public fund

respondents for
2007
2010
8.9
7.4
5.6
6.6
7.5
7.2
7.4
5.8
3.9
Absolute return/
hedge funds
(18) (17)
Private equity
(25) (18)
Real estate
(34) (27)

2
34
JPMorgan Asset Management New Sources of Return Survey, 2005.
Absolute return/
hedge funds
(34) (28)
4.4
7.3
5.1
Private equity
(32) (25)
Real estate
(35) (28)
Average allocations are calculated across all public fund respondents

including investors and non-investors in the specified asset class. Respondent
ANALYSIS BY investor segment: pUBLIC pension FUNDS
especially in public funds real estate (ex-REITs)

portfolios (Exhibit 72).
n
I nfrastructure participation among public funds is

expected to more than double by 2010 (Exhibit 68),
potentially reflecting a comfort with, and a need to
diversify large real estate holdings.
G
reen/sustainable investing showed unexpected
strength among public funds, with a participation
rate expected to nearly triple by 2010 (Exhibit 68).
We believe that this increase is being driven in part
by various state treasurers, state and city controllers
and other pension leaders in their efforts to channel
more funding toward green investing.3 Several
respondents noted the importance of balancing both
social and fiduciary responsibilities in pursuing
these investments.
Exhibit 71: Percentage of public fund respondents currently

investing in and planning to increase (decrease) allocations to
% of respondents
Plan to increase
75
Plan to decrease
S pecial issues: GASB accounting for Other Postemployment Benefits (OPEB) is in transition,
requiring disclosure of the funded status of OPEB
plans, historically funded on a pay-as-you-go basis.
At the time of our survey, there was a great deal of
uncertainty around whether and to what extent
these benefits should be pre-funded, as well as how
to invest any assets set aside for funding. It remains
to be seen how extensive a role alternatives will play
in the investment of these funds (Exhibit 73).
Exhibit 72: Public funds expect further geographic diversification

of their real estate and REIT portfolios
60
44
Absolute return/
hedge funds
(20)
Private equity
(32)
10
Real estate
(39)
Based on public fund respondents currently investing in the specified asset

class. Respondent base is in parenthesis.
U.S. domestic

Real estate
portfolio (32)
-11.5
REITs
Portfolio (26)
International
Global
1.9
3.7
3.0
2.9
5.1
Exhibit 73: Will public plan sponsors pre-fund Other Post-employment Benefits (OPEB) liabilities... at what level, and how?
Unsure
30%
% respondents (50)
Level of OPEB Funding:

t27% expect to fund the annual required contribution (ARC) only
t 18% expect to fully fund liabilities
Yes
22%
No answer
22%
No
26%
Construction of OPEB Portfolio:

t 16% expect to construct OPEB portfolios with the
same allocation as their current pension portfolio
t 8% expect to construct an OPEB portfolio that is
less aggressive than their current pension portfolio
1. Do you plan to fund your OPEB (Other Post-employment Benefits) liability?

2. At what level?
3. And how do/would you construct your OPEB portfolio as compared to your current pension plan?
3
See for example the Investor Network on Climate Risk (INCR) Action Plan, April 2008.
35
ANALYSIS BY investor segment: ENDOWMENTS & FOUNDATIONS
Endowments & foundations

For E&F investors, the challenge is to maintain
current payouts while protecting the real value of
assets. With generally less restrictive investment
policies and a longer history with alternatives,
E&Fs now have an average allocation to alternatives of 29%, headed toward 36% in 2010
(Exhibit 74), approximately double that of public
funds and corporate plans.
In fact, more than half of E&F respondents say that a
20% to 30% allocation to alternatives is too low
(Exhibit 75) and approximately a third believe that
there is no natural limit on the extent to which alternatives could displace traditional long-only strategies
within the portfolio.
they take an opportunistic view of recent market turmoil, with 68% saying that current credit market dislocations offer a buying opportunity (Exhibit 76).
More than 50% indicate they have taken advantage of
shorter-term opportunities (or have the ability to do
so) alongside their longer-term strategic investments.
Given their strong internal capabilities, E&Fs rely
primarily on internal investment staff to implement
these opportunistic strategies (Exhibit 77).
Based on their high reliance on alternatives, it is not
surprising that E&Fs are concerned that high inflows
will create overcrowding and impinge not just on
their access to top managers, but also their managers
access to deal flow and investment opportunity:
n
In addition to the highest overall commitment in

terms of portfolio allocation, E&Fs in general, show
the most dynamic approach to alternatives: i.e., the
greatest diversification within alternatives and the
most opportunistic view of the market. For example,
Falling returns, overcrowding, and quality

managers were cited as the top three concerns for
E&Fs with regard to alternatives (Exhibit 78).
I n addition to transparency, their top concern

regarding absolute return/hedge funds is access to
top performing managers (Exhibit 79).
Exhibit 74: E&Fs have the highest and fastest growing allocation
to alternatives
Exhibit 75: Overall, E&Fs feel an allocation of 20% to 30% to

alternatives is too low
% E&F respondents (55)
Average allocations
across E&F respondents
100%
80%
60%
Alternatives
29
36
19
Fixed Income
Just right?
38%
Too low?
51%
Total Equity
18
40%
20%
0%
51
47
2007
(43)
2010
(40)
Too high?
11%
respondents. Respondent base is in parenthesis.
Exhibit 76: E&Fs generally view recent changes in the structured products and credit insurance markets as an opportunity
% of respondents
68
We think current market conditions

offer a buying opportunity
52
We are not particularly concerned

about the impact of recent market
events on our portfolio
We are cautiously optimistic about
current and new investment in
alternative strategies
We have less confidence in existing
managers and their ability to generate
superior returns
Other
16
30
52
41
35
4
3
4
81
47
Total E&Fs (55)
14
13
Endowments (32)
17
Foundations (23)
How do the recent changes in the structured products and credit insurance markets affect your view of alternative investments in your portfolio? Multiple responses
36
Exhibit 77: E&Fs have taken advantage of shorter-term opportunities alongside their longer-term investment horizon
% of E&F respondents
Flexibility to implement shorter-term ideas?
Who implements these ideas?

55
Yes, we have taken advantage

of shorter-term opportunities
Yes, we have flexibility to take
advantage of shorter-term
opportunities, but have not
implemented
43
89
64
9
13
44
48
Existing managers
36
No, we do not typically invest

this way, other than when our
existing managers do so within
their current mandate
32
29
33
Other good managers who

provide the insightful ideas
22
48
6
Other
80
In-house
investment staff
63
21
12
15
Total E&Fs (53)
Other
Endowments (32)
Total E&Fs (41)

Endowments (27)
Foundations (21)
Foundations (14)
Alongside your long-term investment horizon, do you exercise shorter-term investing flexibility to take advantage of current market opportunities?
If you have implemented shorter-term opportunities, or have the flexibility to do so, who has implemented/is likely to implement these ideas?
Multiple responses accepted. Respondent base is in parenthesis.
Exhibit 78: Greatest concerns among E&Fs regarding alternatives and the management of their portfolios
% of E&F respondents citing
28
Falling returns/performance
Overcrowding of space
20
20
Quality managers/tools
Transparency
15
11
Liquidity
Risk
No concerns
9
9
Valuations
Staffing/oversight capabilities
Volatility
4
4
Blow up/melt down

2
Fees
Global recession
Accounting concerns 0
Counterparty relationship 0
22
Other
As alternative investments become more popular, what is your greatest concern with respect to managing your plan assets/portfolio in the current market
environment? Multiple responses accepted. Respondent base = 46.
Exhibit 79: Transparency is the primary challenge E&Fs face when investing in absolute return/hedge funds
% of E&F respondents citing
Transparency
46
Access to top-performing
managers
30
Resources and expertise
24
Liquidity
19
High fee arrangements
11
Headline risk/
reputation risk
11
Board approval
What are the top three challenges you face when considering investments in absolute return or hedge fund strategies? Respondent base = 54. Multiple responses
accepted.
37
Growth Highlights
Despite overall high participation rates and high
allocations, E&F investors continue to set the pace by
increasing their exposure to alternatives nearly acrossthe-board, in well-established as well as newer alternative categories. Significant trends in the E&F investor
segment include:
n
R
eal estate will be a dynamic asset class for
E&Fsa somewhat surprising result, given that
this asset class has not been an emphasis for E&Fs
historically, and they have dedicated a relatively
small share of their alternative portfolios to real
estate. On the other hand, this recent attention to
real estate is not so surprising when one takes into
account their opportunistic approach. Over the next
several years, real estate is expected to show:
a llocation increases (+26% among current investors; and +38% across all E&F respondents) that
are the largest of any investor group
(Exhibits 81, 82)
a majority of existing E&F investors (60%)
increasing their allocations (Exhibit 83)the
highest percentage of any investor group
g rowth in large part focused on non-U.S. assets,
with a declining share of real estate and REIT
portfolios allocated to the United States
(Exhibit 84)
n
a large jump in new investors (13% of E&F

respondents) with E&Fs participation rate reaching 92% by 2010 (Exhibit 80)nearly equaling
the participation rate of public funds
P
rivate equity has nearly a 100% participation
rate among E&Fs (Exhibit 80). Nevertheless it is
projected to be the fastest growing major alternative asset class for E&Fs over the next three years,
with a surprisingly large increase in overall portfolio allocation: +42% across current private equity
investors as well as across all E&F respondents
(Exhibits 81, 82).
Exhibit 80: Participation ratespercentage of E&F respondents currently investing or planning to invest in
% of respondents
98
Currently invest
Plan to invest
93
79
Absolute return/
hedge funds
(53)
Private
equity
(54)
Real estate
(53)
30
28
21
13
75
Infrastructure
(29)
15
8
Other
real assets
(51)
Portable
alpha
(47)
27
6
Net long equity

(130/30)
(49)
6
Green,
sustainable
(33)
Exhibit 81: Average allocations across E&F respondents currently

investing in
15.6
2007
2010
Exhibit 82: Average allocations across all E&F respondents for

18.1
2007
16.3
14.1
10.5
7.4
Absolute return/
hedge funds
(37) (35)
Private equity
(35) (33)
9.1
5.4
6.4
6.8
Real estate
(29) (27)

38
2010
3.9
Absolute return/
hedge funds
(40) (40)
Private equity
(40) (38)
5.4
Real estate
(40) (38)
Average allocations are calculated across all E&F respondentsincluding

investors and non-investors in the specified asset class. Respondent base is in
parenthesis.
In addition, E&Fs are taking a much more aggressive posture with respect to geographic diversification: They are much more likely to invest in Asia/
Pacific, emerging markets, and even global strategies than other investor segments (Exhibit 85).
n
A
bsolute return/hedge fund strategies are
expected to see continued growth, even though
the participation rate among E&Fs is 98%
(Exhibit 80), and these strategies already represent
nearly half of E&Fs alternative portfolio dollar allocations. Overall portfolio allocations are expected to
increase a healthy 16% by 2010across both existing investors and all E&F respondents
(Exhibits 81, 82).
I nfrastructure participation among E&Fs stands at

21% (Exhibit 80)approximately double that of
corporate and public pension plans. But their interest is slowing somewhat, with relatively few new
investors planning to add this asset class in the near
term.
P
ortable alpha should see a steady increase in
usage among E&Fsincreasing by approximately
50% by 2010as these investors seek to further
diversify their alpha sources (Exhibit 80).
O
ther real assets, valued by these investors for
their diversification and inflation-hedging benefits,
are another area where E&Fs lead. Their participation in this asset class is expected to rise to more
than 80% by 2010, with a relatively large portion
of non-investors (approximately 30%) adding this
asset class (Exhibit 80). In addition, a large percentage of existing investors plan to increase
allocations.
G
reen/sustainable investing is yet another area
where E&Fs played the role of first moverswith
a participation rate (27%) that is more than double
public funds and triple corporate plans (Exhibit
80). But it is another area in which E&Fs appear to
be taking a breather, with few non-investors looking to add this asset class.
Exhibit 83: Percentage of E&F respondents currently investing in

and planning to increase (decrease) allocations to
% of respondents
Plan to increase
Plan to decrease
61
54
60
[We are] looking for alpha and taking

advantage of global opportunities and
growth [in real estate]. Foundation
8
Absolute return/
hedge funds
(50)
4
Private equity
(46)
8
Real estate
(40)
Based on E&F respondents currently investing in the specified asset class.

Exhibit 84: E&Fs expect further geographic diversification of their

real estate and REIT portfolios
International
Global
1.8
Europe
Asia/Pacific
25
13
9.0
-8.3
REITs portfolio (16)
Currently investing
40
42
50
U.S. domestic

Real estate,
portfolio (29)
Exhibit 85: Percent currently investing or planning to invest in

private equity in...
International
developed
10.6
11.1
-14.6
Global
Emerging
markets
18
17
5
15
8
31
Planning to
2
11
50
4
2
Corporate
plans (48)
4
35
19
0
21
6
4
4
Public
funds (38)
E&Fs (52)
39
Conclusion
It appears that the anticipated risk-adjusted
returns, diversification benefits, and high
satisfaction rates with alternatives will continue
to support their growth across the boardin
all investor segments and alternative asset
classesoutweighing investors concerns
about overcrowding and its potential impact
on performance.
Market dislocations have not dissuaded institutions
from their program of using alternatives to add
sources of uncorrelated return and improve riskadjusted portfolio performance. In fact, many investors
see niches of opportunity and are adjusting their alternative asset strategies accordingly. What they are not
doing in any substantial way is pulling back.
This survey indicates that alternatives, used in the
right way, are enabling investors to better tailor
investment strategies to address their myriad financial
and investment concernse.g., controlling volatility,
boosting returns, or hedging inflation.
In this regard, alternative assets have indeed become
an essential part of the portfolio, and the survey data
suggest that as investors comfort levels rise, so do
their overall alternative allocations as well as their
diversification within alternative asset classes.
Continuous innovation will be required to meet the
needsand appetitesof institutional investors as
they further integrate these strategies. They will
require an expanding menu of high-quality, uncorrelated alpha sources from markets around the world.
40
No doubt, just as our current survey includes strategies (e.g., equity 130/30, infrastructure, green investing) not incorporated in our earlier surveys, we expect
our future research on investment trends to cover
strategies, structures, investment themes and frameworks now only on the drawing board or perhaps not
yet conceived.
For asset managers, this growth will pose a challenge.
Investors will demand an increase in the availability
and diversification of alternative offeringschallenging managers to maintain quality and performance
standards even while significantly increasing capacity.
Some are likely to demand packaging and programs
that simplify access, portfolio construction, risk management, and due diligence. Others will look to form
strategic partnerships with their asset managers to tap
into best ideas and develop unique, customized solutions for their investment challenges. They are also
likely to require more assistance in educating themselves and their boards, and in effectively incorporating alternatives into their portfolio strategies.
Thus far the industry has proven itself up to the task,
with continuous innovation in nearly every aspect of
alternative investing. Over the next several years,
however, asset managers will distinguish themselves
by delivering the highest levels of thought leadership
and client service that ultimately serve to meet or
exceed clients performance expectations for both risk
and return.
partial list
of Participants
JPMorgan Asset Management wishes to thank all 191 institutions who participated
in our survey. The following participating institutions generously agreed to have
their names listed in this report.
ABB Incorporated
Cox Enterprises, Incorporated
Abbott Laboratories
Cummins Incorporated
Air Products and Chemicals, Incorporated
Dana Corporation
Alliant Techsystems Incorporated
Daniels Fund
American Airlines, Incorporated
Denver Employees Retirement Plan
American Electric Power Company, Incorporated
Deseret Mutual Benefit Administrators
American Red Cross
Directors Guild of America
Ashland, Incorporated
District of Columbia Retirement Board
Avaya Incorporated
DTE Energy Company
B&W Technical Services Y12, L.L.C.
Duke Energy Corporation
Baltimore County Employees Retirement System
Duke University
Battelle Memorial Institute
Eastman Chemical Company
Baylor College of Medicine
Eaton Corporation
Baylor Health Care System
El Paso Corporation
Baylor University
Emory University
Boise Cascade, L.L.C.
Energy Future Holdings Corporation (formerly TXU

Corporation)
BP North America Incorporated

Briggs & Stratton Corporation
Carnegie Mellon University
Casey Family Programs
Charles Stewart Mott Foundation
Citizens Communications Company
City of Birmingham Retirement and Relief System
City of Hartford Municipal Employees Retirement Fund
City of Los Angeles Fire and Police Pension System
City of Memphis Retirement System
City of Miami Fire Fighters and Police Officers
Retirement Trust
Colgate-Palmolive Company
Conrad N. Hilton Foundation
Consolidated Edison Company of New York, Incorporated
Corning Incorporated
Evanston Northwestern Healthcare

Ewing Marion Kauffman Foundation
Florida State University Foundation, Incorporated
Ford Motor Company
FPL Group, Incorporated
Geisinger Health System
GenCorp
Georgia-Pacific LLC
Greater Kansas City Community Foundation
Grinnell College
GuideStone Financial Resources of the Southern
Baptist Convention
Houston Police Officers Pension System
Indiana State Teachers Retirement Fund
Inter-American Development Bank
41
International Brotherhood of Electrical Workers

Local 26
Jacksonville Police and Fire Pension Fund
John Hancock Financial Services Incorporated
Johnson Controls, Incorporated
Lehigh University
Lifespan Corporation
Lockheed Martin Corporation
Los Angeles City Employees Retirement System
Los Angeles County Employees Retirement Association
Louisiana School Employees Retirement System
Lumina Foundation for Education
Maine State Retirement System
Meadows Foundation, Incorporated
Michelin North America, Incorporated
Michigan Catholic Conference
Minnesota State Board of Investment
New Mexico Educational Retirement Board
New York-Presbyterian Fund, Incorporated
North Dakota State Land Department
Novartis Corporation
NSTAR
Ohio State University
Oklahoma Firefighters Pension and Retirement System
Omaha School Employees Retirement System
Shelby County Retirement System

Shell Oil Company
Smith College
Smithsonian Institution
South Carolina Retirement Systems
Southern California Edison Company
Southern Ute Indian Tribe
Tallahassee Employees Retirement Fund
Texas A&M Foundation
Texas Scottish Rite Hospital for Children
The Aerospace Corporation
The Harry and Jeanette Weinberg Foundation, Incorporated
The J. Paul Getty Trust
The McGraw-Hill Companies
The McKnight Foundation
The Nature Conservancy
The Ohio Police & Fire Pension Fund
The Rotary Foundation of Rotary International
The Samuel Roberts Noble Foundation, Incorporated
The UCLA Foundation
Tulare County Employees Retirement Association
UNITE HERE National Retirement Fund
United Farm Workers Juan De La Cruz Pension Plan
Pennsylvania Municipal Retirement System
United Food & Commercial Workers Union - Pension Fund,

Atlanta
PPG Industries, Incorporated
United Food and Commercial Workers Union Local 711
PPL Corporation
University of Alabama
Public Employees Retirement Association of

New Mexico
University of Arkansas Foundation
Public Employees Retirement System of Mississippi

Public School & Education Employee Retirement
Systems of Missouri
University of California
University of Chicago
University of Delaware
Public School Teachers Pension & Retirement Fund

of Chicago
University of Florida Foundation, Incorporated
Sacramento County Employees Retirement System
Virginia Retirement System
San Antonio Fire & Police Pension Fund
Washington Mutual, Incorporated
San Joaquin County Employees Retirement Association
Wyoming Permanent Funds
School Employees Retirement System of Ohio
42
Sempra Energy
University of Rochester
IMPORTANT DISCLAIMER
This document is intended solely to report on various investment views held by JPMorgan Asset Management. Opinions, estimates, forecasts, and statements of
financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information
provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.
References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted
as, recommendations.
This material contains certain projections and assumptions with regard to the opportunities described therein. This material must not be relied upon as advice or
interpreted as a recommendation by JPMorgan Asset Management that the opportunities are a suitable investment for any recipient of this information.
Investors may experience results that differ materially from any information shown. The return on the opportunities will depend on the actual investments made
and the economic, interest rate and regulatory environment during the relevant period.
Infrastructure investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic
conditions, changes in the value of the underlying property owned by the trust and defaults by borrowers.
The risk of investing in foreign countries is heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading
volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign
investment or private property.
Please note that investments in offshore markets are subject to special currency, political, and economic risks. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in certain markets may be more volatile than other markets and the risk to your capital is therefore
greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of the
investments made.
JPMorgan Asset Management does not make any express or implied representation or warranty as to the accuracy or completeness of the information contained
herein, and expressly disclaims any and all liability that may be based upon or relate to such information, or any errors therein or omissions there from. This
material must not be relied upon by you in making a decision as to whether to invest in the opportunities described herein. Prospective investors should conduct
their own investigation and analysis (including, without limitation, their consideration and review of the analyses referred to herein) and make an assessment of
the opportunity independently and without reliance on this material or JPMorgan Asset Management.
In addition, prospective investors are strongly urged to consult their own legal counsel and financial, accounting, regulatory and tax advisers regarding the
implications for them of investing in these opportunities.
JPMorgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited
to, J.P. Morgan Investment Management Inc., JPMorgan Investment Advisors Inc., Security Capital Research & Management Incorporated and J.P. Morgan
Alternative Asset Management, Inc.
JPMorgan Chase & Co. July 2008
IMWP_ALT SURVEY
JPMorgan Asset Management

245 Park Avenue
New York, NY 10167
jpmorgan.com/insight

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I n v e s t o r s

About JPMorgan Asset Management

Growth in assets, growth in options

Infrastructure, which is becoming an important

alternatives. These strategies seek to help investors

Alternatives are helping investors meet

Next generation alternative investing

Exhibit 3 shows the funded status of pension plan

Exhibit 1: Survey respondent base*

Exhibit 2 provides a breakdown of respondents by

Exhibit 2: Distribution (%) of respondents by size ($ AUM)

Corporate plans * ( 72)

Public funds (48)

Avg AUM $4.2 bn

Avg AUM $14 bn

Avg AUM $14.7 bn

Exhibit 3: Distribution (%) of pension plan respondents by funded status

Corporate plans (63)

Public funds (44)

Less than 80%

As of 12/31/07. Results may not sum to 100% due to rounding.

next generation alternative investing

Exhibit 5: Overall, respondents feel an allocation of 20% to 30%

Exhibit 4: Allocations continue to shift from the traditional to the alternative

Next generation alternative investing

II. Sizing up strategies

Growth in average allocations is expected across

Exhibit 6: Allocations are expected to increase across major

III. Diversification within alternatives

As investors seek to diversify holdings within

Exhibit 7: Average allocations across all current investors in

Infrastructure/other real assets

Based on respondents currently investing in the specified asset class.

Absolute return/hedge funds

Average allocation (%)

Exhibit 8: Average allocations across all respondents for

Average allocation (%)

Note: Allocations presented here are averages of available responses. The

next generation alternative investing

Average allocations are calculated across all respondentsincluding investors

Exhibit 9: Percentage of all current investors planning to increase

Exhibit 6, in combination with Exhibits 7

Getting the big picture:

Based on respondents currently investing in the specified asset class.

Exhibit 10: Participation ratespercentage of total respondents

Absolute return/ Private

Respondent base is in parenthesis.

Exhibit 11: Participation ratespercentage of total respondents

Exhibit 7 shows current 2007 and expected

E xhibit 6 shows average alternative allocationscurrent 2007 and anticipated 2010

Net long equity

E xhibit 8 shows current 2007 and expected

Respondent base is in parenthesis.

Next generation alternative investing

Survey results reveal a fast-growing emphasis on

IV. Investor dynamics

Corporate plan sponsors appear somewhat more

Among corporate plans, specifically, over the next

next generation alternative investing

to account for the largest increase in alternative

For Endowments and Foundations (E&Fs) the

VI. Growing pains

For E&Fs, we expect to see the following trends

Concerns do vary to a degree across client segments:

Infrastructure, which is becoming an important

As investors seek to diversify holdings within

Exhibit 7 shows current 2007 and expected

E xhibit 6 shows average alternative allocationscurrent 2007 and anticipated 2010

E xhibit 8 shows current 2007 and expected

Survey results reveal a fast-growing emphasis on

Corporate plan sponsors appear somewhat more

For Endowments and Foundations (E&Fs) the

Among the most frequently cited factors preventing

While fees are not cited among the top investor

urrently, investors show a relatively high rate of

Growth highlights in absolute return/hedge funds:

the largest percentage planning to invest

t he fastest rate of allocation increase across all

investors cite a common need to improve riskAll

Top 3 challenges are also seen differently across

individual investor segments show different

Growth highlights in private equity: