Mandates for alternatives grow by 70% in two years
GLOBAL – Institutional clients are increasing their allocation to alternative assets – including hedge funds and private markets – according to Towers Watson, which said an additional 70% had been earmarked for investment in the asset class over 2010.
Basing its findings on $76bn (€57.5bn) of total awards made by its own client base last year, the consultancy said interest in infrastructure across the globe was also on the rise, citing a threefold rise in assets awarded to investment managers in 2012 over the previous 12-month period.
Investments have also been made increasingly through direct fund mandates rather than funds of funds, the company said, with global head of investment research Craig Baker noting that a number of appointed managers had in the past five years shown an ability to deliver "good" net of fees performance.
"Larger institutional funds are likely to continue to invest in funds directly for most alternative asset classes rather than via funds of funds as investors continue to focus on better fee structures and greater transparency," he added.
Towers Watson also said smart beta strategies claimed a significant amount of the $12bn transferred to alternatives in 2012.
It said that, of the $20bn allocated by its clients to smart beta to date, $5bn had come from awards in the past 12 months.
"These smart beta strategies range from relatively simple ideas such as real estate securities and specialist infrastructure strategies to create liquid diversity to doing existing betas better, such as non-market cap weighted equities," Baker added.
He said smart beta had a "particularly wide" range of applications among its clients and that the consultancy had been assisting asset managers in developing a number of different approaches to the asset class.
The global head of research also said the consultancy's clients remained aware of diversification, with large sums being allocated to both global bond and equity mandates.
Global equity awards were the most popular, followed by mandates focused on the US – similar to the popularity of global bond portfolios, doubling year on year and allowing the asset region to place first in the fixed income category.
Overall, new mandates in both equity and bonds accounted for 60.5% of all mandates awarded by the consultancy's clients, with the split nearly equal between asset classes.