Only two of the top five largest alternatives firms in 2012 still remained in that category by the close of 2013, according to Towers Watson’s annual report on the sector.
Australia’s infrastructure giant Macquarie Group defended its number one ranking with $96 billion under management, up $1.5 billion from the year prior. Likewise, Connecticut-based Bridgewater Associates maintained its title as the world’s largest hedge fund and the second largest alternatives manager overall, with $87 billion.
Direct real estate fund managers CBRE Global Investors upended the steady capital inflow characteristic of its sector last year to lose $26.3 billion in assets. It dropped from third place in Towers Watson’s 2012 ranking to 11th in the latest report.
Goldman Sachs’ private equity operation experienced a more moderate slip, from fifth to sixth in the global ranking.
New York-based Blackstone’s property division moved in the opposite direction. Between December 2012 and 2013, its assets ballooned from $50.4 billion to $70.4 billion, largely on the back of major US residential purchases. This 40% increase brought Blackstone’s real estate group from the 12th largest alternatives firm globally to number three.
Nearly one in five global pension dollars (18%) were invested with alternatives managers at the end of last year, Towers Watson reported, up from just 5% 15 years ago.
It’s not just pensions that have shown an unrelenting appetite for private equity, hedge funds, infrastructure, and other direct and indirect forms of real assets. Aggregate assets under management for the 100 largest alternatives firms rose by 5%—from $3.11 trillion to $3.27 trillion—between the end of 2012 and the close of 2013.
The investor profile has continued shifting from commercial finance entities—such as banks and funds-of-funds—to institutions, Towers Watson found.
“Pension funds continue to search for new investment opportunities, and alternative assets have been an area where they have made, and continue to make, very significant allocations,” said Brad Morrow, Towers Watson’s head of manager research for the Americas.
But, he continued, pension funds “are by no means the only type of institutional investor looking for capacity with the top alternative managers. Demand from insurers, endowments and foundations, and sovereign wealth funds is on the rise and only going to increase in the future as competition for returns remains fierce.”
One sector of the alternatives industry would beg to differ. The direct commodities funds represented in Towers Watson’s top 100 lost a third of their investor capital between December 2012 and the end of 2013. Assets under management plummeted from $118.2 billion to $78.6 billion.
“Since 2008, the diversification benefits of commodities have been challenged by continued underperformance and high correlations with equities,” the report stated. “Sentiment has been declining resulting in a number of large players exiting the space.”
As most other sectors of the alternatives universe face strong demand from yield-hungry allocators, the report argued that commodities have almost nowhere to go but up: “As spare capacity is eroded, supply needs cannot continue to be accommodated without a price response.”
Source: Towers Watson's 2014 Global Alternatives Survey
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