UK asset managers plan shift to off-market strategies including private equity

Asset managers have seen an increase in demand for alternative asset classes, including infrastructure, alternative credit and private equity, a report published on 26 May by asset management consultancy Alpha FMC has shown.

The survey, which was conducted in February 2020, found that 60% of the UK’s 17 largest asset managers listed one or more alternative asset classes in their top 3 priorities for fund launches in 2020. The participating companies run over 2,000 funds, with a total of £4.3tn of assets under management.

The launch of multi-asset and responsible investment products were also high on the fund managers’ agendas — 53% placed multi-asset as one of their top three products to launch, while 40% said they intend to release a responsible investment product.

The turbulent bull market has been marked by industry experts as an opportunity for active fund managers to prove their worth after years of lacklustre returns compared to index-tracking rivals. Active fund management, particularly in off-market and alternative products, also commands higher fees, which could provide a cash injection for firms.

On 19 May, Boston Consulting Group called for firms to rapidly adapt their business models and bolster their range of alternative assets to help them claw back investors’ flows and profits lost as a result of the Covid-19 pandemic.

“For many asset managers, participating in alternatives may be an imperative as new economic realities materialise,” the report said. According to BCG’s report, the alternative asset classes will represent 17% of global assets under management by 2024, up from 13% in 2019 — but capture an outsized 49% of revenues in the industry.

Tim Quaye, a senior manager at Alpha FMC, said in terms of traditional asset classes “there not many more [funds] to be launched” and that the consultancy had started to see firms closing down funds in traditional asset classes such as mainstream stocks and bonds, “where they don’t deliver value” or “are not as competitive”.

Instead, Quaye said fund managers have seen a “growing demand” for alternative products and so are planning to release more products to the market because of this opportunity.

Demand for these types of products is not new, Quaye added, however wide-scale adoption has been slow because lots of firms are held back by their lack of expertise and resources to create these complicated products. Firms don’t want to be “the first mover” and would prefer to see how other more specialised companies do it first, he said.

The report said that the shift to alternative products also signals a further widening of the divide between specialist firms and large distributors. The shift “indicates that asset managers may be moving further towards either end of a market spectrum, with specialists at one end and global distribution giants with the scale to offer all asset-classes at the other,” the report said.

Source: Penews