News Column

Alternative Assets Continue Their Inexorable Rise

July 14, 2014

Towers Watson survey shows total global alternative assets under management hit $5.7 trillion

NEW YORK--(BUSINESS WIRE)-- Total assets managed by the top 100 alternative investment managers globally reached $3.3 trillion in 2013 ($3.1 trillion in 2012), according to research produced by global professional services company Towers Watson (NYSE, NASDAQ: TW), in conjunction with the Financial Times. The Global Alternatives Survey, which covers seven asset classes and seven investor types, shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (31% and over $1 trillion), followed by private equity fund managers (23% and $753 billion), hedge funds (22% and $724 billion), private equity funds of funds (PEFoFs) (10% and $322 billion), funds of hedge funds (FoHFs) (5% and $173 billion), infrastructure (4%) and commodities (2%).

The research, which this year itemizes real assets* and illiquid credit for the first time, also includes the top-ranked managers, by assets under management (AuM), in each area. Data from the broader survey show that total global alternative AuM is now $5.7 trillion 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 24%, and hedge funds, which increases to 27% of the total.

“For almost all of the past 11 years of this research, we have seen increasing allocations to alternative assets by a wide range of investors. Not only has the appeal of alternative assets broadened to include many more insurers and sovereign wealth funds, but the range of alternative assets has also increased beyond the likes of hedge funds and infrastructure to include real assets, illiquid credit and commodities,” said Brad Morrow, head of manager research, Americas. “So it is not surprising that allocations to alternative assets by pension funds, for example, now account for around 18% of all pension fund assets globally, up from 5% 15 years ago.”

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 (18%), insurance companies (9%), sovereign wealth funds (6%), banks (3%), funds of funds (3%), and endowments and foundations (3%).

“Pension funds continue to search for new investment opportunities, and alternative assets have been an area where they have made, and continue to make, very significant allocations. While remaining an important investor for traditional alternative managers, pension funds are also at the forefront of investing in new alternatives, for example, in real assets and illiquid credit. But they are by no means the only type of institutional investor looking for capacity with the top alternative managers. Demand from insurers, endowments and foundations, and sovereign wealth funds is on the rise and only going to increase in the future as competition for returns remains fierce,” said Morrow.

The research shows that for the top 100 managers, North America continues to be the largest destination for alternative capital (45%), with infrastructure as the only major exception (with more capital invested in Europe). Overall, 38% of alternative assets are invested in Europe, 7% in Asia Pacific and 10% invested in the rest of the world.

In the ranking of top 100 asset managers by pension fund assets, these increased by nearly 2% from the year before to reach nearly $1.4 trillion. Real estate managers continue to have the largest share of pension fund assets, with 35%, followed by PEFoFs (20%), private equity (15%), hedge funds (12%), infrastructure (8%), FoHFs (7%), illiquid credit (2%) and commodities (1%).

“Pension funds globally continue to put their faith in diversity via increasing alternative assets to help deliver more reliable risk-adjusted returns at the total fund level. This is evidenced by the growth, significant in some instances, in all but one of the asset classes in the past five years. Most of the traditional alternative asset classes are no longer really viewed as alternatives, but just different ways of accessing long-term investment themes and risk premiums. As such, allocations to alternatives will almost certainly continue to increase in the long term but are more likely to be implemented directly via specialist managers rather than funds of funds, although funds of funds will also continue to attract assets, as borne out by this research,” said Morrow.

Data from the wider survey show that at the end of 2013, the top 25 alternative asset managers of wealth management assets managed $426 billion (similar to 2012), followed by the top 25 managers of insurance company assets ($275 billion, up by 13%), the top 25 managers of sovereign wealth fund assets ($153 billion, roughly the same), the top 25 managers of bank assets ($124 billion, down by 23%), the top 25 managers of fund-of-fund assets ($100 billion, down by 16%), and the top 25 managers of endowment and foundation assets ($83 billion, up by 15%).

“Throughout the crisis, investors continued to move away from simply holding equities as their main growth asset and to make greater use of alternative assets. We expect this to continue in the future. We think the effort to diversify in this way is worthwhile, but investors need to be cautious about choosing the best and most efficient vehicles, not forgetting the increasing number of cheaper and lower governance routes for improving investment efficiency, such as using smart beta, notably in the alternatives space,” said Morrow.

According to the research, Macquarie Group is the largest infrastructure manager, with $96 billion, and tops the overall rankings, while Blackstone ($70 billion) is the largest real estate manager. The Goldman Sachs Group is the largest private equity manager in the ranking, with $60 billion, and Carlyle Solutions Group is the top PEFoF manager, with $48 billion. Blackstone is the largest FoHF manager, with $54 billion, while Bridgewater Associates is the largest hedge fund manager, with $87 billion. BlackRock is the largest commodities manager, with $53 billion; M&G Investments is the largest illiquid credit manager ($31 billion), and the largest manager of real assets is EII Capital Management, with $11 billion.

* Real assets strategies include a wide range of investment opportunities i.e. in agriculture, farmland, timberland, water (including water rights), natural resources, etc. The distinctive characteristic of real assets is tangible underlying assets and their connection to the food and resource-scarcity theme.

 

The top 25 ranking

                         

Position

   

Name of parent organization

   

Main place

of domicile

   

Total AuM

(US$ millions)


   

Asset class

1    

Macquarie Group

   

Australia

    96,347.90     Direct infrastructure funds
2Bridgewater AssociatesUnited States 87,108.00 Direct hedge funds
3 Blackstone United States 70,405.29 Direct real estate funds
4UBS Global Asset ManagementSwitzerland 64,096.40 Direct real estate funds
5AXA Real EstateFrance 60,936.19 Direct real estate funds
6 The Goldman Sachs Group United States 60,206.00 Direct private equity funds
7TPG Capital*** United States 59,000.00 Direct private equity funds
8J.P. Morgan Asset Management* United States 59,000.00 Direct hedge funds
9Kohlberg Kravis Roberts & Co.United States 54,845.00 Direct private equity funds
10 Blackstone United States 54,292.90 FoHFs
11CBRE Global InvestorsUnited States 53,700.00 Direct real estate funds
12 BlackRock United States 53,431.30 Direct commodities funds
13 Apollo Global Management United States 49,000.00 Direct private equity funds
14LaSalle Investment ManagementUnited States 47,989.00 Direct real estate funds
15 Carlyle Solutions Group United States 47,759.90 PEFoF
16CVC Capital Partners Luxembourg 42,478.30 Direct private equity funds
17 Blackstone United States 42,400.97 Direct private equity funds
18 The Goldman Sachs Group United States 42,223.50 PEFoF
19J.P. Morgan Asset ManagementUnited States 41,615.70 Direct real estate funds
20Credit Suisse Asset ManagementUnited States 41,178.10 Direct real estate funds
21 Och-Ziff Capital Management Group United States 40,600.00 Direct hedge funds
22Principal Global InvestorsUnited States 40,264.70 Direct real estate funds
23 Deutsche Asset & Wealth Management Germany 40,134.20 Direct real estate funds
24 Apax Partners** United Kingdom 40,000.00 Direct private equity funds
25     Providence Equity Partners***     United States     40,000.00     Direct private equity funds
* Data derived from the Global Billion Dollar Club, published by HedgeFund Intelligence.
** Figures show total capital raised since inception, obtained from publicly available sources.
*** Figures show total assets under management, obtained from publicly available sources.
 
 

Overall Survey Statistics

                                                             

Manager

type

 

Investor

type

   

FoHFs*

   

Hedge

funds*

    PEFoFs*    

Private

equity

funds*

   

Real

estate

funds

   

Commodities

funds

   

Infrastructure

funds

   

Real

assets

   

Illiquid

credit

    Total
   

US$ billion

Top 100 total

assets

172.5 723.9 321.6 752.6 1,020.6 78.6 120.6 77.7 3,268.2
 

Top 100

pension fund

assets

94.1 162.8 264.8 199.0 478.4 16.6 108.5 6.7 25.4 1,356.3
 

Top 25

insurance

company

assets

16.7 11.9 32.2 5.4 172.0 6.1 30.7 274.9
 

Top 25

sovereign

wealth fund

assets

17.3 23.9 7.9 37.1 51.6 11.0 4.3 153.1
 

Top 25

endowment

and

foundation

assets

8.7 17.5 5.0 20.6 16.7 4.0 5.4 4.9 82.8
 

Top 25 fund

of fund

assets

40.6 49.9 3.5 5.6 99.5
 

Top 25

wealth

manager

assets

39.0 65.4 43.4 191.0 59.9 26.9 425.6
 

Top 25 bank

assets

    25.7     23.2     4.6     12.4     34.9     2.5     6.1     3.6     11.2     124.2
*Figures for some of these managers were obtained from publicly available sources and using data derived from the Global Billion Dollar Club, published by HedgeFund Intelligence.
 


About the Survey

This survey was conducted by Towers Watson for the year to December 2013 to rank the largest alternative investment managers and includes 589 investment manager entries comprising 85 in real estate, 66 in FoHFs, 55 in PEFoFs, 162 in hedge funds, 90 in private equity, 55 in infrastructure, 32 in commodities, 24 in illiquid credit and 20 in real assets. For real estate, commodities and infrastructure, individual managers are included. The majority of the data (531 entries) comes directly from investment managers, with the remainder coming from publicly available sources. Certain individual hedge fund information was sourced from the Global Billion Dollar Club, published by HedgeFund Intelligence. All figures are in U.S. dollars.

Towers Watson Investment

Towers Watson’s Investment business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 800 associates worldwide, assets under advisory of over $2 trillion and over $60 billion of AuM.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.



Towers Watson

Binoli Savani, +1 703-258-7648

binoli.savani@towerswatson.com

or

Ed Emerman, +1 609-275-5162

eemerman@eaglepr.com

Source: Towers Watson


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