Demand for Alternative Asset Managers To Explode
Recent market volatility has not shaken pension fund managers commitment to alternative assets. In fact, a recent report from Merrill Lynch and Casey Quirk says that the future of investing will not only be more efficient, but the amount of capital inflow into the alternatives space will rival some countries’ gross domestic products. It’s not just about hedge funds. Today, alternatives also encompass private equity, real estate, venture capital and managed futures to name a few. And executive search firm, A.E. Feldman, says that demand is on the rise for alternative investment professionals who have a comprehensive understanding of the risks and benefits of the various asset classes and investment strategies.
Active alternative investments, including hedge funds, will more than double to around $11 trillion by 2011. That’s according to a recent report issued by Merrill Lynch and Casey Quirk. The report, which was based on interviews conducted with more than 400 institutional investors and intermediaries around the world, also shows that over the next five years less liquid assets, such as private equity and real estate as well as new asset classes, such as infrastructure, will see overall assets under management soar a staggering 150%.
The report also notes that individuals and institutions will increasingly outsource investment decision making, while continuing to fulfill their fiduciary obligations. “Retirement systems around the world are facing significant challenges savings rates are not sufficient to support the large and growing retired population” and investment managers need to address this problem head-on,” said David Heaton, co-head of asset management investment banking at Merrill Lynch. “Successful managers will be in the business of helping clients close this implicit funding gap in a proactive way through new and innovative product strategies,” he says.
Asset managers commitment to alternative assets is also underscored in a survey conducted by Citigroup Analyst, Prashant Bhatia. The survey, which polled U.S. and European pension fund managers collectively managing more than $1 trillion in assets, found that 85% of those participants intend to increase their allocations to alternative investments over the next three years. That means on average, pension funds will invest nearly 20% of their assets in alternative investments by 2010.
The Citigroup survey also found that allocations to private equity investments are on track to surpass both hedge funds and real estate. Currently, about 90% of pension fund managers allocate assets to private equity investments vs. 50% to hedge funds. Moreover, the majority of managers expect 10-15% returns on private equity investments, compared to less than 10% on real estate and hedge funds. Managers will also double their investments in alternative assets in Asian countries over the next three years.
