Global alternative assets will increase to US$15.3 trillion by 2020, a PwC report predicts.
The report, Alternative Asset Management in 2020: Fast Forward to Centre Stage, says the growth will likely be driven by a period of transformation in the global alternative asset management industry as players calibrate their business and operations and make technology a top investment priority.
Rapid developments in the global economic environment have pushed asset management to the forefront of social economic change. As a result, the need for sustainable long-term investment returns has propelled alternative asset classes to centre stage. The principal focus for many firms will shift to accessing new distribution channels and creating a broader asset class and product mix.
While some firms still strive to become more institutionalized, the leading players will work to build industrial-strength operational platforms. They will meet this challenge by revamping their business and infrastructure to be more agile, durable and scalable, with a high degree of efficiency and operating leverage.
Assets under management in South America, Asia, Africa and the Middle East (SAAAME) are set to grow faster than the developed world. According to PwC, this expansion will be exemplified by the growth of sovereign assets and the projected emergence of new sovereign investors, the vast majority of which will originate from SAAAME. The largest increases in allocations will likely be in private equity, real estate and infrastructure.
“The shift in global economic power from developed to developing regions will drive continued focus on sovereign investors, fast-growing institutions and the emerging middle classes in new markets,” says Mike Greenstein, global alternative asset management leader, PwC. “These groups of investors will increasingly seek branded multi-capability alternative investment firms. Currently, a number of alternative firms exist in this category and others will aspire to join them.”
PwC predicts that in response to this growth, alternative firms and the traditional firms looking to enter the alternatives sector will pursue one or more of three possible growth strategies; building, buying or borrowing expertise that they do not currently have in-house.
The report predicts alternative managers will develop more sophisticated market strategies, more focused distribution channels, and better recognized brands. Many alternative investment firms will devote more resources to deciding which investor channels they want to play in, how profitable each of those channels are, and how to optimize their chosen channels.
It expects alternative asset managers to:
- continue to move into areas traditionally dominated by banks, such as lending, securitization and financing as the funding gap continues to present considerable new opportunities;
- create partnerships with banks and the largest institutional investors, providing integrated expertise in managing new asset classes and building customized products; and
- respond to the demand from investors for standardized products in the form of liquid alternatives and other permanent capital vehicles.
Historically, investment in technology has not been a top priority for many alternative firms. However, this will change. The next five years will see technology become mission critical in driving investor engagement, data-informed decision making, operational and cost-efficiency, and regulatory and tax reporting.
According to PwC, by 2020, the shift to data-informed decision-making will lead to improved organizational designs that can make more effective use of third-party administrators, business process outsourcing firms, and other vendors to achieve operational and cost-efficiency.