The latest research from Towers Watson and the Financial Times shows total assets managed by the top 100 alternative investment managers globally reached $3.3 trillion in 2013 ($3.1 trillion in 2012),
The Global Alternatives Survey, which covers seven asset classes and seven investor types, shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (31% and over $1 trillion), followed by private equity fund managers (23% and $753 billion), hedge funds (22% and $724 billion), private equity funds of funds (PEFoFs) (10% and $322 billion), funds of hedge funds (FoHFs) (5% and $173 billion), infrastructure (4%) and commodities (2%).
“For almost all of the past 11 years of this research, we have seen increasing allocations to alternative assets by a wide range of investors. Not only has the appeal of alternative assets broadened to include many more insurers and sovereign wealth funds, but the range of alternative assets has also increased beyond the likes of hedge funds and infrastructure to include real assets, illiquid credit and commodities,” said Brad Morrow, head of manager research, Americas. “So it is not surprising that allocations to alternative assets by pension funds, for example, now account for around 18% of all pension fund assets globally, up from 5% 15 years ago.”
The research — which includes data on a diverse range of institutional investor types — shows that pension fund assets represent a third (33%) of the top 100 alternative managers’ assets, followed by wealth managers (18%), insurance companies (9%), sovereign wealth funds (6%), banks (3%), funds of funds (3%), and endowments and foundations (3%).
“Pension funds continue to search for new investment opportunities, and alternative assets have been an area where they have made, and continue to make, very significant allocations. While remaining an important investor for traditional alternative managers, pension funds are also at the forefront of investing in new alternatives, for example, in real assets and illiquid credit. But they are by no means the only type of institutional investor looking for capacity with the top alternative managers. Demand from insurers, endowments and foundations, and sovereign wealth funds is on the rise and only going to increase in the future as competition for returns remains fierce,” said Mr. Morrow.
The research shows that for the top 100 managers, North America continues to be the largest destination for alternative capital (45%), with infrastructure as the only major exception (with more capital invested in Europe). Overall, 38% of alternative assets are invested in Europe, 7% in Asia Pacific and 10% invested in the rest of the world.
In the ranking of top 100 asset managers by pension fund assets, these increased by nearly 2% from the year before to reach nearly $1.4 trillion. Real estate managers continue to have the largest share of pension fund assets, with 35%, followed by Private Equity Fund of Funds (PEFoFs) (20%), private equity (15%), hedge funds (12%), infrastructure (8%), Hedge Fund Fund of Funds (FoHFs) (7%), illiquid credit (2%) and commodities (1%).
“Pension funds globally continue to put their faith in diversity via increasing alternative assets to help deliver more reliable risk-adjusted returns at the total fund level. This is evidenced by the growth, significant in some instances, in all but one of the asset classes in the past five years. Most of the traditional alternative asset classes are no longer really viewed as alternatives, but just different ways of accessing long-term investment themes and risk premiums. As such, allocations to alternatives will almost certainly continue to increase in the long term but are more likely to be implemented directly via specialist managers rather than funds of funds, although funds of funds will also continue to attract assets, as borne out by this research,” said Mr. Morrow.
“Throughout the crisis, investors continued to move away from simply holding equities as their main growth asset and to make greater use of alternative assets. We expect this to continue in the future. We think the effort to diversify in this way is worthwhile, but investors need to be cautious about choosing the best and most efficient vehicles, not forgetting the increasing number of cheaper and lower governance routes for improving investment efficiency, such as using smart beta, notably in the alternatives space,” said Mr. Morrow.
2014 PEPD • Private Equity’s Leading News Magazine • 7-14-14
