Long-term investors fearful of another global financial storm may be better prepared than they were before Lehman Brothers went bust in 2008, but their increasingly nervous disposition could itself be making markets more fragile.

The Lehman collapse and hyper-correlated decline in risky assets everywhere challenged a key long-standing investment tenet that broad diversification of portfolios was sufficient to protect overall savings over time.

In the dark six-month period after September 2008, there were few if any havens from a synchronized slump in equity, commodities, emerging markets, high-yield debt, hedge funds and the like.

Cash, top-rated government bonds and more esoteric "tail risk" hedges such as volatility indices were the only places to hide.

And for many long-term players, pension funds and insurers with 20- or 30-year horizons, that shock may still amount to just a short-term hiatus that fundamentals will correct over time.

But less than four years later, the still-smoldering banking crisis now threatens a fracturing of the euro zone, with some comparing a possible Greek exit from the single currency to a Lehman-style moment and another systemic market shock.

The question for many funds is whether you close your eyes and hope greater diversification will be enough to see through another meltdown, or whether you deliberately build in plans to head for the bunkers quickly to avoid the worst when it happens.

Both seem to be going on in parallel.

RETREAT FROM EQUITY

Surveys of pension funds show them in the midst of significant and seemingly secular retreat from equity, in part due to dire near-zero returns over the past decade and in part due to demographics, liability management and regulation.

But with yields on the plain vanilla alternative of top-rated bonds now so low as to almost guarantee negative real returns over time, the retreat from equity is leading to "alternative" assets such as hedge funds, private equity, high-yield and emerging debt, property or infrastructure.

A survey of 1,200 European pension funds representing 650 billion euros of assets released this week by consultant Mercer, shows no let-up in the equity exit over the past year and more than a third planning further cuts over the next 12 months.

For traditionally equity-loving UK pension plans, the shift is most eye-catching. Their 2012 equity allocations were down to just 43 percent from 58 percent in 2008 and as high as 68 percent in 2003. But the exit is mirrored across the poll.

Europe-wide, the larger funds - those managing 2.5 billion euros or more of assets - cut allocations to equity to as low as 24 percent and now have just 6 percent in home stock markets.

But rather than stack up further on now super-low-yielding government bonds, so-called alternatives are now as high as 15 percent of portfolios - up from just 4 percent in 2008.

Reinforcing the trend to get beyond both straight equity and top-rated debt, a survey of 99 UK pension funds released by Barings this month showed most managers upping alternatives with the specific aim of reducing portfolio volatility and also reviewing their investment portfolios more regularly.

Yet if another Lehman-style market shock were to undermine diversification at least temporarily by sinking all risky assets across borders again, what else is being done?

BNP Paribas Investment Partners, for example, reckon a majority of their clients are now seeking some form of protection from these storms by fixing safety triggers or allowing managers greater flexibility to "de-risk" portfolios in major systemic crises.

So instead of giving fund managers a narrow 10 percent leeway to overweight or underweight a portfolio against a pre-determined benchmark, investors are increasingly willing to allow a dash for cash to protect capital in extreme circumstances.

"Client guidelines are increasingly taking an asymmetric approach and are much more focused on the downside risk than the upside - less with formal triggers than with manager discretion," said Georgina Wilton, investment specialist with BNPIP's Global Balanced Solutions arm.

However, a potential problem with all these behavioral shifts is that the one segment of the marketplace that, because of its longer horizon, acted as a stabilizing force in times of short-term market spikes and swoons now risks adding to the very volatility it's seeking to avoid.

Plans to "de-risk" entire portfolios, more regular reviews of strategies and greater inclusion of explicitly active absolute return or hedge funds within wider portfolios all potentially create more churn in the underlying markets even if that activity is still at the margins for these investors.

The problem is that marginal shifts in a $35 trillion global industry is very big money indeed.

"Many investors are discovering that they are not as long-term as they'd once thought," said Patrick Rudden, fund manager Dynamic Diversified Portfolio at AllianceBernstein.

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