The alternative assets industry reached $7 trillion in assets in 2014, according to Preqin. Although the performance of hedge funds over the past year has been generally considered underwhelming, the asset class accounted for over half of the asset growth across alternatives, as investors continued to deploy capital in funds that are meant to generate returns with low correlation to broad market indices

Across the other asset classes, improving valuations have been a primary driver of asset growth.

“The past year has seen significant growth in the assets held by alternatives managers, most notably in the value of unrealized assets in manager portfolios,” Preqin CEO Mark O’Hare said in a release. “Even with the sub-par performance seen by hedge funds over the course of the year, these managers witnessed the largest growth in their asset base as investors looked to the true value investments in hedge funds can bring.”

The recent news of CalPERS cutting hedge funds and reducing the number of private equity partnerships within their portfolio does not reflect the wider sentiment in the industry.

The majority of investors remain confident in the ability of alternative assets to help achieve portfolio objectives, said O’Hare. Across all asset classes a much larger proportion of investors plan to increase their exposure rather than cut back their allocations to alternatives. However, as the investor base for alternative assets grows and becomes more sophisticated, fund managers continue to face the challenge of how to attract this new capital.

Pension funds are showing a greater appetite for hedge funds. Globally, 29% of pension funds that already invest in hedge funds will increase their allocation. The use of outside managers complicates the task of creating a holistic view of risk across a multi-asset portfolio, with 58% identifying this as a challenge, according to a survey of more than 100 pension executives conducted by State Street and the Economist Intelligence Unit.

“When you look out over the next 3 years about what CIOs are intending to do, they’re taking on more risk in the portfolio construction process, and so the overall appetite is definitely a risk on kind of play right now, and it’s driving a stronger need for better insights as to what’s driving the overall return, and where we’re taking risks within the portfolio,” said Martin Sullivan, head of asset owner sector solutions for North America at State Street.

Another survey finding was the increased use of alternative investments in portfolio construction. Between 15-20% of respondents had not been investing in alternatives but were strongly considering making a move or increasing their allocations to private equity, infrastructure, and real assets.