The Global Alternatives Survey, research compiled by Towers Watson and published in conjunction with the Financial Times has shown the increasing preference for Alternative Asset Cass investment post GFC.
The top 100 Alternaive Investment Managers managed in excess of $3.1billion by the end of 2012.
Alternatives Asset Classes Survey – there are 7 main asset classes(sector managers):
| Asset Class (Managers) | Share of Alternative Investment Pool | ||
| 1 | Real Estate Managers | 34% | 1,054,000,000 |
| 2 | Direct Private Equity Funds Managers | 23% | 713,000,000 |
| 3 | Hedge Funds | 20% | 620,000,000 |
| 4 | Private Equity Fund of Funds | 10% | 310,000,000 |
| 5 | Funds of Hedge Funds | 6% | 186,000,000 |
| 6 | Infrastructure | 4% | 124,000,000 |
| 7 | Commodities | 4% | 124,000,000 |
| TOTAL | 3,100,000,000 |
These Sector Fund Managers get (the 100 top investment managers above) get their Investment Funds from Institutional Clients, made up of 7 Categories:
| Asset Class (Managers) | Share of Alternative Investment Pool | |
| 1 | Pensions funds | 36% |
| 2 | Wealth Managers | 19% |
| 3 | Insurance Companies | 9% |
| 4 | Sovereign Wealth Funds | 6% |
| 5 | Banks | 5% |
| 6 | Fund of Funds | 3% |
| 7 | Endowments and Foundations | 2% |
Macquarie Group has been ranked as the top Global Alternatives Investment Manager by Assets under Management above US and Canadian counterparts in the Global
For alternatives, total global AuM is 5.1Trillion
Richard Tan[1], a local authority who researches Asia Private Markets at Towers Watson Investment reports that investors (institutional and retail) have been increasing their exposure to alternative asset classes. Insurer sand Sovereign Wealth Funds (state owned investment fund)
All pensions funds globally have now allocated 19% of all their assets to alternative asset classes, up from 5% 15 years ago.
Asian Pension Funds
In recent years Asian Sovereign Wealth Funds and Public Pension Funds have begun to increase their allocation to alternative assets especially in the spheres of Private Equity and Real Estate. He also expects other large institutional Investors in Asia to become more exposed to alternative Real Estate and Private Equity because he believes that they want to diversify more fully and achieve better income yields in a post GFC environment.
Mr Tan advises that the funds coming from non Pension Fund Mangers is increasing into the future.
Where are the Alternative Fund Managers Investing?
46% of all funds go to North America, but Infrastrcture investment os mostly in Europe
37% Europe
10% Asia Pacific
7% Rest of World
The biggest clients of Alternative Asset Managers, Pension Funds, allocated 8% more to AA(Alternative Assets) in 2013 than the previous year to reach a total of $1.3trillion
In general he sees that there is increased faith in alternatives and backed by the strong growth of 6 out of the 7 asset classes (commodities such as oil and gold have performed badly)
Drivers of changes in Asset Allocation
As managers move away from simply holding equities (exposure to a single company often in a niche market area that can wax and wane with volatility in that particular niche or be exposed to a new competitor) as their “main growth asset”, they are equally and oppositely moving towards alternatives
The ongoing economic uncertainty is likely to encourage investors away from holding only equities. However caution is encouraged regarding choosing the best and most efficient vehicles, even though there are cheaper and lower governance routes for improving investment efficiency (diversification at a lesser transactional cost) and
Smart Beta
Smart beta is a growing in popularity alternative to the traditional market cap version of beta, which has been criticized due to its tendency to overweight over valued stocks and hence underweight undervalued ones. Smart beta is a technique whereby a manager passively follows an index.
Examples of alternatives to market cap weighting are fundamental based weighted indices developed by Research Affiliates in 2005 which rank their constituents by Book Value, Dividends, Sales and Cash Flow.
Smart beta can also be understood as the returns that emanate from illiquid or private markets such as Real Estate or Infrastructure which offer attractive risk return trade-offs and which can provide important diversification benefits when added to a conventional portfolio of equities and bonds.
Example: some would describe Thematic strategies as being under the smart beta umbrella by building portfolios based on demographic trends or particular sectors such as timber, agriculture, and natural resources. Other smart beta options might include fundamental indexed investments or catastrophe bonds.
[1] 10 July 2013 Category: News, Asia, Global By Asia Asset Management
