Alternative assets could reach $13 trillion by 2020, says PwC
Assets managed by alternative investment strategies could reach $13 trillion by 2020, an increase from $6.4 trillion in 2012, according to research by PricewaterhouseCoopers (PwC).
The PwC study highlighted this growth would be driven by the so-called “retailisation” of alternatives strategies with these investors putting more capital to work in UCITS products in Europe and liquid alternatives in the US as they seek investments offering alpha and downside protection. Nonetheless, it warned a blow-up or drying up of liquidity that impacts retail assets could lead to a regulatory backlash against these alternatives businesses.
At present, growth in regulated alternatives has been sluggish in Europe. Assets in UCITS absolute return strategies, according to Alix Capital, stands at €195.7 billion, a figure which has disappointed some observers. There is also a strong possibility the Alternative Investment Fund Managers Directive (AIFMD) and the potential emergence of AIFMs as an asset class could steal business away from absolute return UCITS strategies.
US service providers remain bullish on liquid alternatives. Citi Prime Finance, for example, estimates $939 billion of the $12.8 trillion in retail assets could flow into liquid alternatives, particularly ’40 Act hedge funds by 2017. Despite this, a number of firms are adopting a ‘wait and see’ approach towards launching regulated products.
It also said alternatives will feature more prominently in institutional investors’ portfolios, particularly defined contribution (DC) pension funds, high-net-worth-individuals (HNWIs) and sovereign wealth plans as they increasingly seek alpha. It added defined benefit (DB) plans, foundations and endowments would modestly increase their commitments to alternatives.
“Uncertainty about the pace and amount of state intervention creates disproportionate opportunities and impacts, and it slows the overall economy and bank activities including lending. When the rules are changing, many investors tend to withdraw, while those with higher risk tolerances place bigger bets. This creates a chasm that separates winners and losers. Institutional investors will exploit the illiquidity premium, many of them enjoy, by increasing allocations to alternatives with illiquid risk-return profiles,” read the study.