Total assets managed by the Top 100 alternative investment managers globally reached USD3.3 trillion in 2013, up from USD3.1 trillion in 2012, according to research by Towers Watson.
Published in conjunction with the Financial Times, 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 per cent and over USD1 trillion).
This is followed by private equity fund managers (23 per cent and USD753bn), hedge funds (22 per cent and USD724bn), private equity funds of funds (PEFoFs) (10 per cent and USD322bn), funds of hedge funds (FoHFs) (five per cent and USD173bn), infrastructure (four per cent) and commodities (two per cent).
The research, which this year itemises real assets and illiquid credit for the first time, also includes the top-ranked managers, by assets under management (AuM), in each area. Data from the broader survey shows that total global alternative AuM is now USD5.7 trillion and is split between the asset classes in broadly similar proportions to the Top 100 alternative investment managers, with the exception of real estate, which falls to 24 per cent and hedge funds which increases to 27 per cent of the total.
Craig Baker, global chief investment officer at Towers Watson, says: “For almost all of the past eleven 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. It is therefore not surprising that allocations to alternative assets by pension funds, for example, now account for around 18 per cent of all pension fund assets globally, up from five per cent 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 per cent) of the Top 100 alternative managers’ assets, followed by wealth managers (18 per cent), insurance companies (nine per cent), sovereign wealth funds (six per cent), banks (three per cent), funds of funds (three per cent) and endowments & foundations (three per cent).
Baker says: “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 alternatives managers. Demand from insurers, endowments & foundations and sovereign wealth funds is on the up and only going to increase in the future as competition for returns remains fierce.”
The research shows that for the Top 100 managers, North America continues to be the largest destination for alternative capital (45 per cent), with infrastructure as the only major exception where more capital is invested in Europe. Overall, 38 per cent of alternative assets are invested in Europe and seven per cent in Asia Pacific, with 10 per cent being invested in the rest of the world.
In the ranking of Top 100 asset managers by pension fund assets, these increased by nearly two per cent from the year before to reach nearly USD1.4 trillion. Real estate managers continue to have the largest share of pension fund assets with 35 per cent, followed by PEFoFs (20 per cent), private equity (15 per cent), hedge funds (12 per cent), infrastructure (eight per cent), FoHFs (seven per cent), illiquid credit (two per cent) and commodities (one per cent).
Baker says: “Pension funds globally continue to put their faith in diversity via increasing alternatives 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 premia. 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.”
Data from the wider survey shows that at the end of 2013, the top 25 alternative asset managers of wealth management assets managed USD426bn (similar to 2012), followed by the top 25 managers of insurance company assets (USD275bn – up by 13 per cent); the top 25 managers of sovereign wealth fund assets (USD153bn – roughly the same); the top 25 managers of bank assets (USD124bn – down by 23 per cent); the top 25 managers of fund of fund assets (USD100bn – down by 16 per cent); and the top 25 managers of endowment and foundation assets (USD83bn – up by 15 per cent).
Baker says: “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; and 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.”
According to the research, Macquarie Group is the largest infrastructure manager with USD96bn and tops the overall rankings, while Blackstone (USD70bn) is the largest real estate manager. The Goldman Sachs Group is the largest private equity manager in the ranking on USD60bn with Carlyle Solutions Group as the top PEFoF manager with USD48bn. Blackstone is the largest FoHF manager with USD54bn, while Bridgewater Associates is the largest hedge fund manager with USD87bn. BlackRock is the largest commodities manager with USD53bn, M&G Investments is the largest illiquid credit manager with USD31bn and the largest manager of real assets is EII Capital Management with USD11bn.