Global shift into alternative assets gathers pace

The worldwide shift into alternative assets gathered pace in 2016 as more institutional investors turned to property, infrastructure, private equity and hedge funds in search of better returns.

Asset purchasing programmes by central banks in response to the 2007-08 financial crisis have led to strong gains and stretched valuations across many publicly traded bond and equity markets, helping to strengthen the attraction of alternatives to large investors.

But the huge scale of new cash inflows into alternatives in recent years has also driven up valuations across these illiquid assets and raised concerns that investors may be disappointed by future returns that are widely expected to be lower than those achieved historically.

Many investors, however, feel they have little choice but to embed illiquid alternatives ever more deeply into their portfolios due to the uninspiring returns on offer from mainstream asset classes after a bull run that has lasted for eight years for equities and almost three decades for government bonds.

Total assets managed by the 100 largest alternative investment managers rose to a little more than $4tn at the end of 2016, up a tenth on the previous year, according to the latest annual Willis Towers Watson/FTfm Global Alternatives Survey, which covers 10 asset classes and seven investor types.

“There was a significant rise in alternative assets last year, markedly stronger than the 3 per cent increase registered in 2015,” says Luba Nikulina, global head of manager research at Willis Towers Watson, the world’s largest adviser to institutional investors.

Blackstone retained its position as the world’s largest manager of alternative assets in 2016. Helped by inflows into its real estate and fund of hedge funds businesses, Blackstone’s alternative assets rose 8.3 per cent last year to $302bn.

JPMorgan held on to second place in the ranking with an increase of 8.9 per cent in its alternative assets to $185bn.

Anton Pil, global co-head of alternatives at JPMorgan Asset Management, says reductions in expected returns for publicly traded stocks and bonds means that investors seeking to boost returns will have to increasingly consider alternative assets along new avenues of diversification and, most importantly, a genuinely active approach to asset allocation.

“The wide dispersion in manager returns is a characteristic of all alternative strategies. This makes effective manager selection critical for…

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