Part 1 of 2
A recently published report by PricewaterhouseCoopers titled ‘Alternative Asset Management in 2020: Fast Forward to Centre Stage’, predicts global alternative assets will increase to $15.3 trillion by 2020. In the lead up to the boom, the global alternative asset management industry is expected to experience a period of transformation as players calibrate their business and operations and make technology a top investment priority, the report says.
According to the report, the rapid developments in the global economic environment have pushed asset management to the forefront of social economic change. As a result, the need for sustainable long-term investment returns has propelled the alternative asset classes to centre stage.
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 institutionalized, the leading players will work to build industrial-strength operational platforms, the report explains. “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 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,” explains Mike Greenstein, global alternative asset management leader at PricewaterhouseCoopers. “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.”
Assets under management in South America, Asia, Africa and the Middle East are set to grow faster than the developed world. According to PricewaterhouseCoopers, this growth will be exemplified by the growth of sovereign assets and the projected emergence of new sovereign investors, the vast majority of which will originate from these countries. . The largest increases in allocations will likely be in private equity, real estate and infrastructure.
PricewaterhouseCoopers predicts that in response to this growth, alternative firms and the traditional firms looking to enter the alternatives sector will pursue one or more of three possible growth strategies; building, buying or borrowing expertise that they do not currently have in-house. The builders will look inwardly for growth, leveraging their existing capabilities and talent, while the buyers will look to acquire talent, track record and scale overnight. The borrowers will achieve their growth strategy by ‘partnering’ with other financial institutions to expand their capabilities and distribution channels.
Stay tuned for part 2 of this report in the next day or so, where PwC takes a closer look at alternative managers and what we can expect from them going forward.