Three-quarters of institutional investors nationally have changed their approach to risk management over the last five years, and say alternative investments are critical to spreading portfolio risk, according to a survey from Natixis Global Asset Management.

The survey, conducted in June and July, found the investors challenged by market volatility, but resigned to it as a new fact of financial life. Some 82% said they found it difficult to mitigate the impact of market volatility, while 76% reported difficulty in protecting their portfolios from dramatic swings.

Although nine in ten were looking on the bright side when they said they thought volatility increases investment opportunities, about eight in ten admitted having trouble meeting their total return objectives. More than three-quarters said they were struggling with tail risk in particular. Regardless, most were pragmatic, with 83% saying volatility is here to stay.

As a result most reported that they had beefed up their approach to risk management in the last five years. One-third said their risk tolerance is lower today than five years ago, before a string of market crises began. Again, pragmatism was the byword, as almost two-thirds said ratcheting down risk means accepting lower returns. And 22% say they can't effectively manage portfolio risk due to market volatility.

Not surprisingly, respondents said risk management looms large in the next 12 months. Some 38% said using strategies to limit exposure to volatility is their top priority. The second ranking priority of 33% of respondents is to pay more attention to actual measures of risk than average measures. Next on the list for 29% of the respondents is to boost allocations to alternatives or non-correlated assets.

That accords with the majority of respondents who say new methods must be used to battle volatility. About two-thirds say that boosting the use of non-correlated assets and liquid alternatives are effective strategies for managing portfolio risk. Seven in ten say boosting allocations to non-correlated assets is the best way to ease market volatility. Perhaps more surprisingly, 64% say that traditional diversification and portfolio construction techniques are outdated and need to be replaced. A further 72% no longer believe the classical 60-40 stock-bond allocation is the best.

The survey was conducted online in June and July with 482 institutional investors globally. The U.S. contingent numbered 151 with a median asset level of $30 billion.