After years of steady but low growth, the combined assets of
the worlds largest 100 alternative asset managers
increased by 10 percent in 2016, reaching $4 trillion in assets
no thanks to hedge funds.
The bullish environment for alternatives affected almost
every investment category except for these funds, which have
endured criticism in recent years for poor performance and high fees. Assets in direct hedge fund
strategies dropped more than ten percent, from $755 billion to
$675 billion in assets, according to consulting firm Willis
Towers Watsons Global Alternatives Survey 2017, published
on Monday. By contrast, assets in illiquid credit strategies
more than doubled, from $178 billion to $360 billion.
Investors have talked about their disappointment in hedge
funds for years, but this is the first time the survey found a
significant drop in assets.
It took a long time for the numbers to reflect the
trends that were already clear in the market, says Luba
Nikulina, global head of manager research for the consultant in
London. Investors are disillusioned with high fees,
skewed alignment of interests, and performance problems of
However, she notes that with capital leaving and volatility
rising in the markets, it might be a good time for investors to
take another look at the category.
Compare illiquid credit with hedge funds, she
says. When people are piling in, its time to stop
and think. But when capital is flowing out, theres a
possibility of doing something attractive.
The popularity of illiquid credit grew sharply after the
global financial crisis of 2008, as banks stepped away from
making riskier loans and asset managers began offering direct
lending funds of their own. Nikulina says the ballooning
illiquid credit sector may have implications for investors.
We are quite concerned that the sheer volume of
capital flowing to illiquid credit is chasing yield away,
she says. The relatively new asset class, however, may have a
permanent spot in portfolios now that institutional investors
have gotten comfortable with the strategies.
As long as banks dont come back into this space,
then institutional capital will likely stay, Nikulina
The survey found that real estate managers accounted for the
largest share of assets of the top 100 alternatives managers,
at $1.4 trillion (or 35 percent of the total). Private equity
fund managers accounted for 18 percent of the total, with $695
billion, while hedge funds accounted for 17 percent of the
total. Global alternative assets under management grew to $6.5
trillion, according to the survey.
The research also shows that pension funds represent one third of total
assets invested in the top 100 alternative asset managers,
followed by wealth managers at 15 percent, sovereign wealth
funds at 5 percent, endowments and foundations at 2 percent,
banks at 2 percent, and funds of funds at 2 percent.
Insurance companies are increasing their allocations. Last
year, insurers went from 10 percent to 12 percent of the
Despite the controversy over the high price tag for
investments such as private equity, hedge funds and other
alternatives, pension fund assets managed by the top 100 rose 9
percent from the year before. Thats a little more than
half their total assets under management. Real estate is their
largest allocation, clocking in at 41 percent.
Some notable chart toppers are Bridgewater Associates, which
remains the largest alternative investment manager, with $116
billion in direct hedge funds. Blackstone Group is the largest
private equity manager with $100 billion and also the largest
fund-of-hedge fund manager with $71 billion. Prudential Private
Placement Investors is the largest illiquid credit manager with
$81 billion in assets, and TH Real Estate, a unit of Nuveen, is
the largest real estate manager globally, with $105