Alternative investment inflows slowed down last year as institutions and advisors-possibly alarmed by the asset class's recent performance-expressed less enthusiasm about the products, according to a survey released today by Morningstar and Barron's magazine.

According to the survey, 65% of advisors and 67% of institutions indicated that alternative investments are as important or more important than traditional investments, which is down slightly from last year's survey. Institutions indicated rising interest and investment in alternative investments in each of the prior three surveys, but this year's survey saw some retreat. Among the institutions surveyed, 26% indicated they plan to allocate more than a quarter of their portfolios to alternative investments, which is down from 37% in the last survey.

In addition, the survey showed that investors have cooled to established equity-based alternatives, but not to non-equity-based strategies such as managed futures and currencies, despite poor performance. Managed futures and currency mutual funds recorded inflows of $3.6 billion and $3.4 billion, respectively, in 2011, despite the fact that managed futures lost 6.9% that year, while currency funds lost money every year since 2008.

"Institutional investors and financial advisors have significantly expanded their alternative holdings since the 2008 crash, and continue to view alternative investments as an important part of their portfolios," said Scott Burns, director of ETF, closed-end fund and alternative research for Morningstar. "Growth has begun to slow, though, as investors have ramped up their allocations, and excitement may be cooling with the lackluster performance of alternatives relative to the overall market over the last few years."

The fourth annual national survey examined the perception and usage of alternative investments among institutions and financial advisors. Conducted in January, the survey is based upon responses from 264 institutions and 365 financial advisors.

While alternatives continue to gain assets, bucking a trend that has seen dollars withdraw from U.S. equities, growth and excitement in the alternative space seem to be diminishing, according to the survey. Alternative mutual funds saw inflows of $23.2 billion in 2011 ($14.2 billion, excluding the nontraditional bond category), while U.S. equity mutual funds bled $84.7 billion. But alternative investment inflows were lower than prior years. Alternative ETF inflows for 2011 were only $11.6 billion, the lowest level since 2006. Inflows for alternative mutual funds were $1.8 billion less than the prior year.

Other survey findings include:

For the second year in a row, advisors cited managed futures as the asset to which they were most likely to increase their exposure, while currency funds didn't make their top five.

Institutions flagged managed futures as the third most popular strategy for increased allocation, while long/short equity (or debt) and private equity/venture capital were the top two strategies for increased allocation.

While still positive, flows into market neutral and long/short equity funds-two more well-established categories-saw far lower inflows in 2011 than in 2010.

Unanimously, advisors and institutions agreed that while diversification was driving alternative investments, high fees and lack of liquidity were holding them back. Institutions indicated liquidity was the greatest impediment, while advisors cited higher fees as their top concern. Uncertain benefits and lack of transparency were cited as negatives by resopndents. The percent of advisors concerned about lack of liquidity over the years has fallen sharply, from 60% in 2009 to 40% in the most recent survey, coinciding with the launch of many new liquid alternative products.