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Save for the beehive hairdo, shoulder-touching shirt collars and neon-colored jumpsuits, the vast majority of fashion fads eventually come back in style.

So is the case with alternatives, according to bfinance’s winter 2010 survey released late last month (click here to view the survey), which notes that property, infrastructure, private equity and “absolute return strategies” are not only back in favor but all the rage among pension funds. (Click chart to enlarge.)

It’s a post-2008 feather in the cap for these non-conventional investment strategies, which garnered the most positive sentiment among those surveyed – well over bonds, which are definitely out, and certainly over stocks, which in Frankie Valli-like fashion are still relevant but don’t seem to know when to call it quits (apparently his latest tour in the Miami area was not his best).

The survey found “highly positive attitudes” towards other alternative asset classes, including private equity, absolute return strategies, Global Tactical Asset Allocation and commodities. (Click here for AllAboutAlpha.com’s synopsis of last year’s survey, which focused on fee acrimony among other trends.)

What the results confirm, according to the report, is the broader trend that has been in place over the past few years: diversification out of traditional asset classes and into so-called “non-core” assets. As the chart below shows, pension interest in each of the non-core asset areas showed a net increase in the percentage difference between those “increasing” and those “decreasing” allocation of over 10%.

The trend towards greater diversification is further illustrated by the fact that as many as 36% of investors expect to increase the number of asset classes invested in over the next 12 months, compared with only 2% anticipating a decline.

While allocations to the smaller classes like socially responsible investing (“SRI”) may look modest, think of it this way: Of those respondents who currently allocate to SRI, a full third plan to increase their allocation while none plan to decrease it. That’s got to say something about these “off the beaten path” alternative investments.

(Note how “Absolute Return strategies” ranked a little further down, but still beat equities and fixed income.)

But like a return to “grunge” without the oversized plaid lumber jackets, what’s conspicuously missing from the mix are hedge funds, funds of hedge funds (FoHFs) and even “portable alpha” types of alternatives, which garnered a lot less interest from survey participants – both on absolute and relative bases. Indeed, like the fact that baggy jeans defy the odds and remain in style, allocations to equities continue to remain in vogue for pension funds, which according to bFinance is somewhat counterintuitive, given their exponential run-up over the past year and at best a mixed bag of reasons why valuations at current levels are justified.

According to the survey, equity allocations have actually showed a modest increase in the past six months, mostly in emerging markets, while bonds continued to get the collective thumbs down – a reflection of record-low yields and ongoing uncertainty about risk, thanks to ongoing sovereign debt issues in Europe.

Still, “[a]s valuations adjust, this trend will lose steam,” the report notes, and,

“What is unlikely to change is the growing demand for alternatives. Careful attention to manager selection will be crucial to avoid disappointment, as increasing amounts of money are allocated to these often more niche strategies.”

So there it is: good news for non-traditional, non-core investments, but not necessarily for hedge funds.

Based on the survey results, we suspect the time has come to for hedge fund managers to brush up the “transparency,” “liquidity” and “valued-added” segments of their marketing materials, hit the dog-and-pony show and convince pension funds that they, too, are in style for 2011.

Converse shoes? Maybe. But please think very carefully before donning the “Choose Life” T-shirt and acid washed jean jacket again.

Source: For Pensions, 'Absolute Return' Strategies and Other Non-Core Investments Are Back in Style