Equities have outperformed alternatives since the financial crisis, and given the high fees generally associated with hedge funds, some institutional buyers are questioning whether the supposed benefits of alternatives are worth their costs. High-profiles examples include California Public Employees' Retirement System and New York City Employees' Retirement System, both of which have recently pulled back from hedge funds. Karen McQuiston, managing director, Institutional Advisory & Solutions at PGIM, the global investment management businesses of Prudential Financial (PRU) - Get Report , says the recent drive to dump all alternative funds misses the bigger picture. Instead, McQuiston encourages investors to focus on the role that each asset is meant to play in their portfolio, rather than just on period-dependent performance. For instance, alternatives as a whole are generally expected to diversify the more traditional assets held in the portfolio, but diversification potential varies greatly. Real estate did appear to be a very effective portfolio diversifier, delivering significant uncorrelated returns, according to McQuiston. In the hedge fund space, McQuiston found that macro strategies offer strong potential for diversification, and relative value demonstrated a low exposure to the equity market.