More than 90 per cent of fund managers plan to increase their use of alternatives, including private credit, over the next three years, as macroeconomic volatility drives greater adoption of hedging strategies.

Investors are increasingly looking to alternatives to deliver uncorrelated returns and dampen standard deviation across core portfolios, with fund managers increasingly making a structural rotation into private markets, a report by Clearwater Analytics has found.

Clearwater, an investment management platform, found that traditional, static asset allocation frameworks are rapidly being retired, with 90 per cent of fund managers predicting that the inclusion of alternatives – specifically private equity, private credit, infrastructure and hedge funds – within core strategies will increase over the next three years.

Overall, the push is shifting liquidity requirements across public and private asset classes, forcing firms to manage heightened redemption and underlying liquidity risks, Clearwater added.

Read more: Moody’s: Insurers set to boost private credit allocations

“What stands out in this data is how many firms are making similar moves,” said Keith Viverito, managing director EMEA at Clearwater Analytics. “That’s worth watching, because a strategy the whole market adopts together behaves differently than one only a few firms hold.”

Clearwater’s research, called The Crowded Trade, surveyed 250 senior executives at fund managers across the US, Europe and the Asia-Pacific region.

Read more: Private credit exposure set to rise in DC pensions

Alongside rebalancing portfolios towards private markets, global fund managers are increasingly using sophisticated derivative overlays and hedging strategies in response to the volatile macroeconomic landscape, Clearwater said.

Over the past year, 55 per cent have increased their internal use of hedging mechanisms. Over the next 24 months, that trend is expected to continue, with nearly four in five firms (79 per cent) forecasting further increased use of hedging strategies, the research said.

Read more: Asset owners increasing exposure to private markets