A predicted rise of investment in alternative assets is expected to offer significant opportunities for Guernsey and Jersey, as premier locations for alternative asset funds and fund managers, in the coming years.
According to ‘Alternative Asset Management in 2020: Fast Forward to Centre Stage’, a report just published by PwC, investments in alternatives could double from their current level to reach $15.3tn by 2020. Key findings of the report, which is essential reading for all business leaders in the Channel Islands who need to keep abreast of changes in the alternative asset management industry landscape, include:
- $15.3tn worth of alternative investments are predicted by 2020 if the high performance of capital markets continues to be driven by accommodative monetary policy and stable GDP growth
- $13.6tn of alternative assets by 2020 if interest rates in Europe and the US rise and are coupled with a normal correction in capital markets
Mike Byrne, Partner and Asset Management industry leader at PwC in the Channel Islands, commented:
“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. New markets and untapped investor types will open up if alternative managers can develop the products and access the distribution channels to tap them.”
Growth in alternative assets will principally be driven by three key trends:
- A government-incentivised shift to individual retirement plans;
- An increase in the number of high-net-worth-individuals from emerging populations;
- The growth of Sovereign investors, expected to come from the SAAAME region (South America, Asia, Africa and the Middle East)
Addressing an aging population:
By 2020, PwC predicts there will have been a fundamental shift towards alternative investments by many Sovereign and public pension funds. By 2020 it is expected that global pension fund assets will have reached $56.6tn, with alternative assets expected to play a considerably larger role in their asset allocation mix.
Filling the funding gap:
PwC expects alternative asset managers to continue to move into areas traditionally dominated by banks, such as lending, securitization and financing as the funding gap in the world’s economies continue to present considerable new opportunities. Others will create partnerships with banks and the largest institutional investors, providing integrated expertise in managing new asset classes and building customized products.
It’s not about the data:
By 2020, PwC predicts that the focus of leading alternative investment firms on data will have moved on. Time will be spent on analysis and reporting, rather than the manipulation, of data.
PwC predicts that asset managers will dominate the capital rising required to support growing urbanisation and cross-border trade.
- Rising assets, increased regulatory requirements and pressure to reduce fees will continue to put pressure on the asset management industry.
- 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 institutionalised, the leading players will work to build industrial-strength operational platforms. 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 largest increases in allocations will likely be in private equity, real estate and infrastructure.
Mike Byrne added:
“Most firms will recognise that success in generating alpha – measuring performance on a risk-adjusted basis – does not on its own guarantee success as an organisation. Those managers who are looking not just for growth but for sustainable growth, will develop their infrastructure, have a clear strategy and create robust organisational structures to exploit the opportunities that will emerge in the coming years.
"Whilst the mega-managers may focus on a multi manager strategy and building a global distribution platform, for many managers the focus will need to be on driving alpha, sticking to their core strategy and being able to clearly explain that strategy to the investors they are targeting. If they do this there is a bright future for the independent boutique alternatives’ manager.
“Given the bulk of their funds business is in alternatives, for the Channel Islands, these trends represent real opportunity.”