I have blog previously on the benefits of Alternative investments for a robust portfolio.
They would benefit Target Date Funds (Life Cycle Funds) and they have benefited Endowments and foundations for many years.
As the Funds Under Management (FUM) grows within Kiwisaver there will be an increasing allocation to Alternative investments. This will include the likes of unlisted assets (Private equity, direct property, and direct infrastructure), hedged funds, and liquid alternative strategies such as Alternative Risk Premia strategies.
A recent paper by Preqin, Preqin-Future-of-Alternatives-Report-October-2018, assesses the likely size, shape and make-up of the global alternative assets industry in 2023, the emphasis being on private capital and hedge funds.
Preqin are specialist global researchers of the Alternative investment universe and provide a reliable source of data and insights into alternative assets professionals around the world.
Needless to say, Alternatives are going to make up a large share of investment assets in the future.
Preqin’s estimates are staggering:
- By 2023 Preqin estimate that global assets under management of the Alternatives industry will be $14tn (+59% vs. 2017);
- There will be 34,000 fund management firms active globally (+21% vs. 2018).
This is an issue from the perspective of capacity and ability to deliver superior returns. Therefore, manager selection will be critical.
Preqin outlined the drivers of future growth as the following:
- Alternatives’ track record and enduring ability to deliver superior risk-adjusted returns to its investors, Investors need to access alternative sources of return, and risk, such as private capital.
- They note the steady decline in the number of listed stocks, as private capital is increasingly able to fund businesses through more of their lifecycle;
- A similar theme is playing out in the debt markets, there are increasing opportunities in private debt as traditional lenders have exited the market; and
- The emerging markets are seen as a high growth area.
According to Preqin the following factors are also likely to drive growth:
- Technology (especially blockchain) will facilitate private networks and help investors and fund managers transact and monitor their portfolios, and reduce costs vs public markets.
- Control and ESG: investors increasingly want more control and influence over their investments, and the ability to add value; private capital provides this.
- Emerging markets: the Chinese venture capital industry already matches that of the US in size; further emerging markets growth will be a ‘double whammy’ of GDP growth + higher penetration of alternative assets.
- Private individuals: the ‘elephant in the room’, as the mass affluent around the world would like to increase their investment in private capital if only the structures and vehicles (and regulation) permitted; technology will help.
The Preqin report covers many other topics and interviews in relation to the Alternative sector.
Global Investment Ideas from New Zealand. Building more Robust Investment Portfolios.