Alternative assets are well known as an attractive way to diversify and enhance returns, but as market conditions change and investment options shift, investors and asset managers should re-examine their approach and question longstanding assumptions.
Historically low interest rates and the enduring effect of quantitative easing are making markets expensive, so investors continue to turn to alternative asset classes where alpha looks better.
But surplus capital and other factors have forced valuations up and prospective returns down. Changes in how we work and live, prompted by new technology, innovative business models, and geopolitical shifts, could render many real assets obsolete while creating opportunities elsewhere. We also see new entrants disrupting the sector, capturing value and market share.
In this report, PwC examines the fundamentals behind this transformation and the changes across the following asset classes:
In our view, investors should act now by focussing on three things as alternative asset management moves towards a new paradigm:
It’s time to have a clear view of the changes that will affect alternative asset management tomorrow and to reorganise investment portfolios and teams accordingly.
Large institutional investors might want to reorganise by merging real estate and infrastructure areas, for example, to reflect increasing overlap in real assets. But if these changes are merely cosmetic, they’ll probably just consume resources and be futile.
All investors must understand the impact of technology on their investments. Increasingly widespread digitalisation, as well as application of artificial intelligence and alternative data, will affect all asset classes.
Over time, we expect to see investors actively investing in and developing new business models – learning from those investments and discovering new value but ultimately embracing technology-driven change.
Investors need new skills, and firms need new employment models. Organisations should have the skills to understand the impact of new technologies on investment strategies, or knowledge of emerging markets. We believe this will require asset management teams to become more diverse, with a wider range of commercial experience and geographical presence. Business units should be structured and incentivised to look beyond traditional investment silos, to challenge lazy strategies or to identify the threat of new entrants and new business models.
Global Private Equity, Real Assets and Sovereign Funds Leader, PwC United Kingdom
Global Asset and Wealth Management Leader, Partner, PwC Ireland (Republic of)
Tel: +353 (0) 1 792 8719