Alternative investments could reach a high of USD15.3 trillion by 2020, according to a new report from PwC – ‘Alternative Asset Management in 2020: Fast Forward to Centre Stage’.
USD15.3 trillion worth of alternative investments are predicted by 2020 if the high performance of capital markets continues to be driven by accommodative monetary policy and stable GDP growth .
USD13.6 trillion of alternative assets by 2020 if interest rates in Europe and the US rise and are coupled with a normal correction in capital markets.
Robert Mellor, UK Asset Management 2020 leader at PwC, says: “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. These groups of investors will increasingly seek branded multi-capability firms. Currently, a number of alternative firms exist in this category. Others will aspire to join them. New markets and untapped investor types will open up if alternative managers can develop the products and access the distribution channels to tap them.”
Growth in alternative assets will principally be driven by three key trends:
• A government-incentivised shift to individual retirement plans;
• An increase in the number of high-net-worth-individuals from emerging populations;
• The growth of Sovereign investors
The vast majority of new Sovereign investors are expected to come from the SAAAME region (South America, Asia, Africa and the Middle East)
By 2020, PwC predicts there will have been a fundamental shift towards alternative investments by many Sovereign and public pension funds. By 2020 it is expected that global pension fund assets will have reached USD56.6 trillion, with alternative assets expected to play a considerably larger role in their asset allocation mix.
PwC expects alternative asset managers to continue to move into areas traditionally dominated by banks, such as lending, securitization and financing as the funding gap in the world’s economies continue to present considerable new opportunities. Others will create par trillionerships with banks and the largest institutional investors, providing integrated expertise in managing new asset classes and building customized products.
By 2020, PwC predicts that the focus of leading alternative investment firms on data will have moved on. Time will be spent on analysis and reporting, rather than the manipulation, of data.
PwC predicts that asset managers will dominate the capital rising required to support growing urbanisation and cross-border trade.
Rising assets, increased regulatory requirements and pressure to reduce fees will continue to put pressure on the asset management industry.
The principal focus for many firms will shift to creating a broader asset class and product mix and accessing new distribution channels.
While some firms still strive to become more institutionalised, 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.
The largest increases in allocations will likely be in private equity, real estate and infrastructure.
Robert Mellor, UK Asset Management 2020 leader at PwC, says: “Most firms will recognise that success in generating alpha – measuring performance on a risk-adjusted basis – does not on its own guarantee success as an organisation. Those managers who are looking not just for growth but for sustainable growth, will develop their infrastructure, have a clear strategy and create robust organisational structures to exploit the opportunities that will emerge in the coming years. While they will still manage highly disparate strategies that leverage unique skillsets, operationally they will start to look more homogenous as a group as they seek to create ‘industrial strength’ in their operations and processes.
“Durability and profitability will be essential credentials for any alternative firm which has ambitions to follow – or lead – the industry to the centre stage of the investment landscape.
"Whilst the mega-managers may focus on a multi manager strategy and building a global distribution platform, for many managers the focus will need to be on driving alpha, sticking to their core strategy and being able to clearly explain that strategy to the investors they are targeting. If they do this there is a bright future for the independent boutique alternatives’ manager.”
