The challenge of diversity

The current investment climate has seen correlations between mainstream assets change. In search of increased returns and diversification, many insurers and pension funds are moving in to alternatives. But the consensus on how alternatives will increase diversification benefits has not yet been reached Aaron Woolner reports

The recent narrowing of credit and equity risk premium has made the move into alternative assets by a growing proportion of insurers and pension funds look like a fantastic idea. The increased diversification that results gives two risks for the price of one - and QIS3, the latest round of Solvency II specifically incorporating such benefits into its risk capital assessments, offers the possibility of higher returns for lower risk. Surely the dream team combination for long-term investors?

But