Total global assets under management by the top 100 alternative investment managers reached US$6.2 trillion in 2015, according to research by Willis Towers Watson.
Its global alternatives survey, which covers 10 asset classes and seven investor types, show that real estate managers have the largest share of assets at 34 per cent and more than US$1.2 trillion. Next is hedge funds at 21 per cent and US$755 billion, private equity fund managers at 18 per cent and US$640 billion, private equity funds of funds at 12 per cent and US$420 billion, funds of hedge funds at six per cent and US$222 billion, and infrastructure and illiquid credit, both at five per cent.
The research showed the level of assets in insurance-linked investments is about US$30 billion, with almost two-thirds of that amount invested in Europe by 13 asset managers.
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“Institutional investors continue to focus on diversity but not at all cost,” said Luba Nikulina, global head of manager research at Willis Towers Watson, in a news release. “While inflows into alternative assets continue apace, investors have become more mindful of alignment of interests and getting value for money.
“This has contributed to a further blurring between individual asset classes, as investors increase their focus on underlying return drivers with the ultimate objective of achieving true diversity and making their portfolios more robust in the face of the increasingly volatile and uncertain macroeconomic environment.”
The research also found that pension funds represent a third (34 per cent) of the top 100 alternative managers’ assets, followed by wealth managers (19 per cent), insurance companies (10 per cent), sovereign wealth funds (six per cent), banks (two per cent), funds of funds (two per cent), and endowments and foundations (two per cent).
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“The alternative asset management industry continues to be remarkably reliant on pension fund money and has earned a position of trust by delivering diversified returns via some of most highly skilled investment teams around,” said Nikulina. “However, in the face of increased scrutiny on the overall value proposition from asset managers to asset owners, there is an ever-increasing demand for more alignment and lower cost.
“Achieving this would have a positive knock-on effect for managers of attracting assets from other investors, such as insurers and sovereign wealth funds, wanting to make the most of market volatility and associated alpha opportunities; particularly given the current lack of clear beta opportunities.”
Among the top 100 global managers, North America continues to be the top destination for investment in alternative assets, with illiquid credit and infrastructure being the only asset classes where investors are investing more capital in Europe, according to the report. Overall, Europe’s share of alternative asset investment is 37 per cent, with a further eight per cent invested in the Asia-Pacific region and five per cent invested in the rest of the world.
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At 40 per cent, real estate managers continue to have the largest share of pension fund assets, followed by private equity funds of funds (20 per cent), hedge funds (10 per cent), private equity (nine per cent), infrastructure (eight per cent), funds of hedge funds (seven per cent) and illiquid credit (four per cent).
“Canada’s largest pension plans are global leaders in alternatives and their well-known experiences have helped to feed the appetite for alternatives in the general Canadian institutional landscape,” said Denise Kehler, portfolio strategist at Willis Towers Watson’s Montreal office.
“As it has been for some time, alternative investment in Canada continues to be dominated by domestic real estate followed by ever increasing allocations to private equity, infrastructure and global real estate. Recently, infrastructure has garnered attention as governments worldwide, including in Canada, announce plans to invest deeply in the asset class. Given the current low return, higher volatility environment in traditional asset classes, the long-term, stable nature of infrastructure returns is appealing to many investors.”
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According to the research, Macquarie Group Ltd. tops the overall rankings and is the largest infrastructure manager with more than US$95 billion in that class, while the Blackstone Group is the largest private equity manager with more than US$94 billion and the largest real estate manager with also almost US$94 billion.
In the ranking, Bridgewater Associates is the largest hedge fund manager with US$88 billion and Blackstone is the largest funds of hedge funds manager with almost US$68 billion. Goldman Sachs is the largest private equity funds of funds manager with almost US$45 billion and M&G Investments is the largest illiquid credit manager with more than US$33 billion.
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