Global Alternative Assets Soar to $6.2 Trillion

The top 100 managers had $3.6 trillion in assets under management.

Global alternative assets under management reached $6.2 trillion in 2015 despite investors’ increasing demand for more alignment and lower cost, according to Willis Towers Watson.

“The shift from equities and bonds to alternatives has gained momentum among most institutional investors around the world, as these strategies have helped manage risk through diversity,” said Brad Morrow, US head of manager research for the consultant.

The survey found the top 100 alternative managers had control of $3.6 trillion, more than half of total assets in the sector.

Real estate managers had the largest share of assets ($1.2 trillion), followed by hedge funds at $755 billion, private equity at $640 billion, and private equity funds-of-funds at $420 billion. Funds-of-hedge fund managers only had $222 billion in assets.

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Alternative managers also continued to be dependent on pension fund money, with more than one-third of top 100 managers’ assets belonging to pensions, the survey found.

Despite such investments, pension funds have been increasingly vocal about alignment of interest and fees. Some of the largest US pension plans—the California Public Employees’ Retirement System and the New York City Employees’ Retirement System—even pulled the plug on hedge funds over the last few years.

Willis Towers Watson argued that meeting these pension funds’ demands could help managers attract assets from other types of investors “wanting to make the most of market volatility and associated alpha opportunities, particularly given the current lack of clear beta opportunities.”

The survey also revealed Macquarie Group was the largest alternative—and infrastructure—manager with more than $95 billion in assets. Blackstone topped the list as the largest private equity and real estate manager boasting $94 billion in each asset. Bridgewater Associates claimed the title of largest hedge fund manager ($88 billion) while Blackstone again was named the largest funds-of-hedge funds managers ($66 billion).

“What’s certain is that while the asset management industry as a whole faces some existential questions on whether it has delivered on its promises and how to improve its value proposition in the future,” Morrow concluded, “the best managers will continue to innovate, capture opportunities, and deliver value to investors.”

Home > News > Asset Allocation > How Brexit Surprised Risk Parity

Asset Allocation July 12, 2016

How Brexit Surprised Risk Parity

Low volatility prior to the UK’s landmark referendum may have lulled some investors into a false sense of security, according to research.

Risk parity strategies were hit hard by the fallout from the UK’s referendum on European Union membership, data show—and they could be caught off guard again.

Such funds loaded up on equities and other risk assets immediately prior to the referendum on June 23, according to analysis by Markov Processes International (MPI). This left risk parity investors exposed to the spike in volatility that followed the vote in favor of Brexit.

“The volatility prior to the vote in risky asset classes not only decreased, but decreased more than fixed income, a traditionally safe haven during periods of crisis,” MPI’s report stated. As risk parity strategies favor low-volatility asset classes in order to balance out risk across their portfolios, “more responsive” funds shifted allocations towards equities, MPI said.

“This suggests that any anticipation within the markets of the dramatic sell-off did not surface in shifts in volatility,” the report said. “In fact, risk parity portfolios were being positioned for an appreciation of risk assets.”

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A number of funds experienced losses close to, or higher than, their stated maximum value at risk measure.

Risk parity fund returns post-Brexit Performance of risk parity funds on June 24 following Brexit.

Last August risk parity funds were blamed by some investors for contributing to sharp sell-offs, as they are more likely to reduce equity exposure during periods of high volatility. A number of products performed poorly in 2015, but prior to the UK’s referendum they had in aggregate recouped most of the losses incurred during 2016.

AQR Co-Founder Cliff Asness argued in December that investors should not be put off by short-term performance. “Drawdowns in real life always seem to feel longer and induce more pain than you’d imagine looking back,” Asness said. “This is true for risk parity and all of investing.”

MPI warned that a short period of positive performance was equally no reason for investors to “let their guard down.”

“They should be wary of the types of events to which risk parity funds are calibrated to adapt,” MPI said. “What we just experienced could very well be the beginning of a new cycle of volatility surprises.”

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