Total assets managed by the top 100 alternative investment managers globally reached US$3.5 trillion in 2014 (up from US$3.3 trillion in 2013), finds Towers Watson.

The Global Alternatives Survey, which covers nine asset classes and seven investor types, shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (33% and more than US$1 trillion), followed by hedge funds (23% and US$791 billion), private equity fund managers (22% and US$767 billion), private equity funds of funds (PEFoFs) (10% and US$342 billion), funds of hedge funds (FoHFs) (5% and US$214 billion), infrastructure (4%) and illiquid credit (3%).

Read: Global alternative assets expected to reach US$15.3 trillion

The research also lists the top-ranked managers by assets under management (AUM) in each area. Data from the broader survey (all 623 entries) show that total global alternative AUM is now US$6.3 trillion (US$5.7 trillion in 2013) 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 23%, and hedge funds, which increases to 27% of the total.

“Institutional investors continue to invest capital in opportunities other than bonds and equities,” says Brad Morrow, Tower Watson’s head of investment manager research. “Lines are blurring between individual asset classes as investors focus more on underlying return drivers. Many asset managers in this area will continue to attract capital, and those that acknowledge the increasing sophistication of institutional buyers’ approach and change accordingly will truly flourish.”

The research, which includes data on a diverse range of institutional investor types, shows that pension fund assets represent one-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 and foundations (2%).

Read: Institutional investors consider raising allocation to alternatives

“The alternative asset management industry houses some of the most highly skilled investment teams around, which if combined with aligned interests and fair fees, provide a compelling proposition,” he says. “However, investors across the board should first check that they have sufficient governance levels, particularly for complex alternatives. This ensures they make the most of the increasing market volatility and associated alpha opportunities, particularly given the current lack of clear beta opportunities.”

The research shows that for the top 100 managers, North America continues to be the largest destination for alternative capital (47%), with infrastructure and illiquid credit as the exceptions where more capital is invested in Europe. Overall, 36% of alternative assets are invested in Europe and 9% in Asia Pacific, with 8% being invested in the rest of the world. In addition, among the top 100 managers, illiquid credit assets grew the most in 2014, adding nearly a third (28%), while hedge funds and infrastructure funds increased by 9% and 8%, respectively.

In the ranking of top 100 asset managers by pension fund assets, these increased again from the year before to reach over US$1.4 trillion. Real estate managers continue to have the largest share of pension fund assets with 36%, followed by PEFoFs (20%), private equity (15%), hedge funds (12%), infrastructure (8%), FoHFs (6%), illiquid credit (4%, versus 2% in 2013) and commodities (1%).

“Not all alternatives are created equal. Hedge funds and private equity are very complex and require high governance, while real estate and illiquid credit can be more straightforward,” Morrow adds. “There is also a growing trend of investors differentiating between alternatives and holding a more granular return-driver perspective when building their asset allocations instead of using the traditional asset class approach.”

The survey shows that at the end of 2014, the top 25 alternative asset managers of wealth management assets managed US$454 billion (up 7%), followed by the top 25 managers of insurance company assets (US$288 billion, up 5%), the top 25 managers of sovereign wealth fund assets (US$155 billion, roughly the same), the top 25 managers of bank assets (US$140 billion, up 12%), the top 25 managers of fund-of-funds assets (US$122 billion, up 23%), and the top 25 managers of endowment and foundation assets (US$81 billion, down 3%).

Read: Private real estate assets reach all-time high

“The alternatives area is a highly competitive market and has produced innovative approaches to solve challenges in an enduring low-return environment—and for pension funds, stubbornly high deficits,” he says. “Yet parts of this industry are criticized for not adding value after fees and not serving the end savers’ best interests. This could challenge sustainability of the industry and invite increased regulation. It is up to the industry to address these concerns and together ensure we change investment for the better.”

According to the research, Macquarie Group is the largest infrastructure manager, with more than US$92 billion, and tops the overall rankings, while Bridgewater Associates is the largest hedge fund manager, with almost US$90 billion. In the ranking, CBRE Global Investors (US$82 billion) is the largest real estate manager, and TPG Capital is the largest private equity manager, with US$67 billion.

Blackstone is the largest FoHF manager, with more than US$63 billion, and Carlyle Investment Solutions is the largest PEFoF manager, with more than US$46 billion. M&G Investments is the largest illiquid credit manager, with more than US$33 billion; PIMCO is the largest commodities manager, with nearly US$19 billion, and the largest manager of real assets is TIAA-CREF, with more than US$7 billion.

Copyright © 2022 Transcontinental Media G.P. Originally published on benefitscanada.com

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