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Willis Towers Says Alternative AUM Nears $6.5 Trillion

Traders Magazine Online News, July 21, 2017

John D'Antona Jr.

The world’s largest 100 alternative asset managers saw assets under management increase by 10% in 2016, rising to $4 trillion, according to the 2017 edition of Willis Towers Watson’s (NASDAQ: WLTW) Global Alternatives Survey. The survey, which captures long-term institutional investment trends by seven main investor groups across 10 alternative asset classes, showed that of the top 100 alternative investment managers, real estate managers have the largest share of assets (35% and over $1.4 trillion), followed by private equity fund managers (18% and $695 billion), hedge funds (17% and $675 billion), private equity funds of funds (12% and $492 billion), illiquid credit (9% and $360 billion), funds of hedge funds (6% and $228 billion), infrastructure (4% and $161 billion) and commodities (1%).

In terms of the growth in asset classes among the top 100 asset managers, illiquid credit saw the largest percentage increase over the 12-month period, with assets under management rising from $178 billion to $360 billion. Conversely, assets allocated to direct hedge fund strategies among the top 100 asset managers fell over the period, from $755 billion to $675 billion.

“As capital supply and competition have increased in some segments of the illiquid credit universe, yields are not always offering sufficient compensation for illiquidity and risk,” said Brad Morrow, head of manager research, North America, Willis Towers Watson. “At the same time, we have seen some withdrawal of capital from hedge funds in the face of high fees, skewed alignment of interests and performance headwinds. It appears the growing groundswell of negative sentiment that has arisen due to the aforementioned issues is now showing up in the decisions of asset allocators. We have been surprised it has taken this long to observe the trend turn; however, this is aligned with our long-held view that the hedge fund industry needs to change, with those willing to offer greater transparency and display value for money likely to prosper going forward.”

Data for the total alternative investment universe show that overall alternative assets under management now stand at just under $6.5 trillion, across 562 entries. North America continues to be the largest destination for alternative asset manager allocations (54%). Overall, 33% of alternative assets are invested in Europe and 8% in Asia Pacific, with 6% invested in the rest of the world.

The research also highlights that when looking at the distribution of assets within the top 100 alternative asset managers by investor type, pension fund assets represent a third (33%) of assets, followed by wealth managers (15%), sovereign wealth funds (5%), endowments and foundations (2%), banks (2%) and funds of funds (2%). Notably, insurance companies’ proportion among the top 100 alternative asset managers grew from 10% to 12% of total manager assets.

“Although the alternative asset manager universe continues to be dominated by pension fund assets, as solutions have continued to evolve that are better aligned to investor needs and incorporate lower cost structures, we have seen growing interest from other investor groups, such as insurers looking to lock in alpha opportunities presented by continued volatility,” said Morrow.

Pension fund assets managed by the top 100 alternative asset managers now stand at $1.6 trillion, up 9% compared to last year’s study, and represent 51% of their total assets under management. Real estate managers continue to have the largest share of pension fund assets with 41%, followed by private equity funds of funds (18%), hedge funds (12%), infrastructure (8%), illiquid credit (8%), private equity (7%) and funds of hedge funds (5%).

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