Global investments in alternative assets grew by more than 10.5 per cent over the 2014 calendar year, according to a new report.
The latest ‘Global Alternatives Survey’, produced by actuarial and consulting firm Towers Watson in association with the Financial Times, found assets under management in the sector reached US$6.3 trillion in 2014, up from $5.7 trillion in the previous year.
Real estate was the most popular asset class among the top 100 managers included in the survey (who collectively accounted for about US$3.5 trillion), attracting 33 per cent of the total investments or more than $1 trillion.
The Towers Watson survey found hedge funds represented 23 per cent of the top 100 alternative managers, closely followed by private equity (22 per cent).
Of the remaining top 100 alternative investment managers included in the report, 10 per cent were private equity funds of funds followed by funds of hedge funds (5 per cent), infrastructure (4 per cent) and illiquid credit (3 per cent).
“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 (19%), insurance companies (8%), sovereign wealth funds (5%), banks (4%), funds of funds (3%) and endowments & foundations (2%),” the Towers Watson report says.
New Zealand investors tend to be underweight alternative assets compared to global peers. According to recent analysis by Aon Hewitt NZ investment consultant, Guy Fisher, KiwiSaver funds, for example, have allocated less than 2 per cent to alternative assets.
But while Fisher said some New Zealand institutional investors were taking tentative steps towards alternatives, the Towers Watson survey found offshore investors were becoming increasingly sophisticated in their approaches to the underlying sectors.
In the hedge fund space, for instance, the report found investors were looking beyond talent alone from underlying managers.
“As the industry has evolved, investors are increasingly seeking more than just pooled fund investments from managers – focusing on partnerships around terms, strategy focus, implementation and idea sharing,” the study says. “…Genuine alpha remains relatively scarce and those who can access it will rightly continue to attract flows; but for those hedge fund managers who have been selling overpriced beta masked as alpha, the game is likely over.”
The report found similar levels of development in most of the alterative sectors it surveyed, including in the ‘natural resources’ (or ‘real assets’) area.
“We expect that allocation to this asset class will continue to grow over time,” Towers Watson says. “We also expect to see more institutional platforms being built in agriculture (for example, a large institutional investor/asset manager partners up with a local player), more separate accounts being offered to
Asian investors in timber and agriculture, more direct investments from sovereign wealth funds globally in both direct farmland and also in agriculture-related businesses.”
Of the 623 alternative asset managers surveyed by Towers Watson, 44 were based in the Asia-Pacific region, including one from New Zealand – the Wellington-based infrastructure investment firm Morrison & Co.
With just under US$6 billion under management, Morrison & Co ranked 286th in the 623-strong list by asset size, sandwiched in-between the Curacao-headquartered Edmond de Rothschild Capital Holdings fund of hedge funds and another direct infrastructure fund manager, UK-based Infrared Capital Partners.
While most of the alternative managers were domiciled in the US or Europe, Australia’s Macquarie direct infrastructure business was the largest on the Towers Watson list with just over US$92 billion under management.