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Institutions embrace stocks and bonds to meet goals: Pyramis

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[October 27, 2014]  NEW YORK (Reuters) - Most pension funds and other institutional investors worldwide expect to meet their five-year investment goals and are increasingly confident they can get there using traditional stocks and bonds, a survey showed on Monday.

Among those surveyed, 91 percent of institutional investors said they expected to hit their targets in five years, up from 65 percent in 2012, according to the 2014 Pyramis Global Institutional Investor Survey.

The survey also showed that institutions globally are embracing stocks and bonds, while alternatives such as hedge funds are losing their luster for U.S. investors. The confidence in stocks and bonds came even as market volatility remained the top concern for institutions, with 22 percent citing it as such.

Many view alternatives as favorable in a volatile market on the premise they offer returns that are "uncorrelated" to traditional stock and bond markets.

The survey covered 811 institutional investors in 22 countries overseeing more than $9 trillion in assets.

Institutional investors "are looking for more simplicity, and they're finding that they're able to generate the types of returns that they need for their plan participants with this more traditional asset allocation," said Pam Holding, chief investment officer at Pyramis.

The greatest percentage of U.S. respondents, 44 percent, said alternatives such as hedge funds were not worth the fees.

The Pyramis findings come after Calpers, the largest U.S. pension fund, said in September it would pull out all of the $4 billion it had invested in hedge funds because they were too costly and complicated.

Faith in stocks and bonds was strong enough that 43 percent of global respondents said they would increase their stock exposure if equity markets plunged 20 percent or more. A dominant portion of respondents, 25 percent, said a traditional mix of stocks and bonds would prevail in the next 10 years.

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While a spike in interest rates was viewed as the top risk for 23 percent of global respondents, 30 percent said they would maintain the same exposure to bonds if rates rose 1 percent or more, but would further diversify their bond investments.

Worries about a correction in stock markets worldwide and a spike in U.S. interest rates have loomed over financial markets this year. The Federal Reserve is expected to raise interest rates from rock-bottom levels next year.

The survey also showed that current funded status was the top concern among U.S. institutions in particular, and 51 percent of the U.S. respondents expect volatility and the frequency of financial crashes and market bubbles to stay the same.

Asset manager Pyramis conducts the survey of institutional investors once every two years. The survey included 281 private-sector pensions, 173 public pensions and 126 financial institutions.

(Reporting by Sam Forgione. Editing by Andre Grenon)

[ 2014 Thomson Reuters. All rights reserved.]

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