By Daniel Lanyon on Wednesday 1 November 2017
Demand for alternative assets such as private debt has been on a tear in recent years.
Alternative asset classes – in particular, real assets, private equity and private debt – will more than double in size, reaching $21.1trn by 2025, accounting for 15 per cent of global AuM as investors diversify to reduce volatility and target specific return and risk outcomes, according to research by PwC.
PwC predicts investment firms will provide capital in areas such as trade finance, peer-to-peer lending and infrastructure. They will be more active in all aspects of lending activities traditionally undertaken by banks, e.g. arranging a syndicate of investors for large infrastructure projects.
PwC also anticipates soaring growth in real assets – mainly infrastructure and, to a lesser extent, real estate, private equity and private credit. Over the four years from 2016-2020, PwC forecasts a 27.5 per cent per annum growth rate in infrastructure, slowing to 15 per cent from 2020-2025. Infrastructure assets will expand more than fivefold, from $0.6trn in 2016, to $3.4trn in 2025.
Continuing from the strong growth they experienced in 2015, assets in alternatives saw a 5.1 per cent increase by the end of 2016 in terms of assets under management, according to research from Willis Towers Watson.
Luba Nikulina, global head of manager research at Willis Towers Watson, says alternatives are continuing to grow in popularity, with investors remaining under pressure to find effective means of diversification in an environment of lower expected returns from traditional asset classes.
“These strategies often come with greater complexity and require superior risk management. We see this as linked to the growth in assets managed by managers in the bottom half of our list, suggesting that investors favour smaller investment houses with specialist investment skills.”
Rob Mellor, PwC asset management partner, says alternative strategies are popular with fund managers.
“We have seen the rise of the multi-strategy alternative manager and an increasing trend for traditional active managers looking to add alternative strategies to their product range; all of this is driving an appetite for M&A activity in the alternative asset management space.”