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Global alternative AUM hit US$5.7 trillion

Date: Tuesday, July 15, 2014
Author: James Langton, Investment Executive

Pension funds at the forefront of investing in new alternatives

Investors worldwide now have a total of US$5.7 trillion devoted to alternative assets, according to new research from Towers Watson.

The firm reports that its research (along with the Financial Times) found that within the overall alternative universe, the top 100 alternative investment managers were managing US$3.3 trillion as of the end of 2013 (up from US$3.1 trillion in 2012). Real estate managers account for almost a third of this total (31%) managed by the 100 managers, followed by private equity fund managers at 23%, and hedge funds at 22%. Private equity funds of funds and funds of hedge funds account for another 10% and 5%, respectively; infrastructure investments represent 4%, and commodities are at 2%.

The firm also reports that its research finds that pension fund assets represent a third 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 Brad Morrow, head of manager research, Americas, at Towers Watson.

The research also found that for the top 100 managers, North America continues to be the largest destination for alternative capital (45%), followed by Europe at 38%, there's 7% in the Asia Pacific region, and the remaining 10% is invested in the rest of the world.

"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.

The firm reports that Australia's Macquarie Group leads the overall rankings, and is the largest infrastructure manager, with US$96 billion in infrastructure assets. Bridgewater Associates is the largest hedge fund manager, with assets of US$87 billion. Blackstone ranks first among real estate managers at US$70 billion in assets. Goldman Sachs is the largest private equity manager in the ranking, at US$60 billion. BlackRock leads the commodities manager rankings, with US$53 billion in assets. M&G Investments is the largest illiquid credit manager at US$31 billion, it says; and the largest manager of real assets (such as farmland, timberland and water) is EII Capital Management, with US$11 billion.

The top-ranked Canadian firm in the survey is Brookfield Asset Management, which checks in at 49th place in the overall rankings, with US$27.6 billion in real estate AUM.