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Alternatives, Private Equity Investment Ready for New Growth: Report

The boom in alternative asset investing — particularly private equity investing — is far from over, according to a new PwC report. In fact, the report — titled Alternative Asset Management 2020: Fast forward to centre stage — concludes that the asset classes should hit highs that range from $13.6-15.3 trillion for all alternatives, including $6.5-7.4 trillion for private equity alone, by 2020.

Writes PwC: “Alternative firms, with their emphasis on investment outcomes rather than products, and specialisation rather than commoditisation, will increasingly attract investors seeking customisation, diversification and genuine long-term alpha. At the same time, alternatives will increasingly occupy a prominent allocation in the world’s economies, both established and emerging. Fast-forwarding to 2020, alternatives will have a centre stage role to play in the investment universe and in the global economy.”

Reuters reports that “Fueled largely by demand by sovereign funds, public pension funds and newly wealthy individual investors for steady and strong investment returns, the alternatives industry is poised for booming growth.”

Or, as Mike Greenstein, PwC’s global alternatives leader, told Bloomberg: “It’s really about broadening the client base. That’s in large part fueled by the growth of the sovereign investors and the emerging markets in alternative assets, as well as the retail channel.”

The PwC report outlines what it calls six “key business imperatives”:

  • Choose your channels: “Alternative firms by 2020 will adopt world-class ideas and practices from the broader financial services industry and from traditional asset managers. They will develop more sophisticated market strategies, more focused distribution channels and better recognised brands.”
  • Build, buy or borrow: “Greater segmentation of investors will, in turn, drive greater segmentation of the managers themselves. Deciding which segment of the market to inhabit will require alternative firms to more consciously evaluate what they are as an organisation and where they want to be. They will typically aspire to be one of the following types: diversified alternative firms, specialty firms or multi-strategy firms. All these models exist today; the difference is that firms will by 2020 explicitly choose a growth strategy in order to remain competitive.”
  • More standardisation, more customisation: PwC sees a response to three investor demands: “The first is the ongoing demand by the largest institutional investors for made- to-order products, providing greater customisation and strategic alignment. The second is demand for next-generation commingled funds that are more focused on outcomes. The third is demand for liquid alternative funds in standardised formats as some institutional investors, as well as the mass affluent and newly wealthy, seek easy access to alternative strategies.”
  • From institutional quality to industrial strength: “Owners, investors and regulators will broaden their expectations from ‘institutional quality’ to ‘industrial strength’. They will expect alternative firms to operate in a way that goes beyond the prerequisite quality standards to operate even more effectively and offer a broader range of capabilities.”
  • The right resources in the right places: “By 2020, the shift to data-informed decision-making will lead to improved organisational designs that can better deliver the right resources to the right places.”
  • It’s not only about the data: By 2020, “leading alternative firms… will have laid the necessary ‘plumbing’, and accessing data across their organisations will be as natural as turning on a tap… The result will be a data-centric, self-service environment in which time is spent on the analysis and reporting of data, rather than on the manipulation of data.”

PwC’s Greenstein and Andrew Thorne of the U.S. Asset Management team discuss the report here: