The structural shift among investors toward greater asset allocation to alternative investments will benefit asset managers with expertise in alternative asset classes, according to Moody’s Investors Service.
A new report has found that well-established alternative asset managers with proven track records such as Blackstone, KKR, Oaktree and Carlyle will clearly benefit from this marked trend.
However, traditional asset managers that have begun building their capabilities in alternative assets, such as BlackRock (A1), Invesco Ltd. (A3), Clipper Acquisitions (Ba1), Neuberger Berman Group (Ba1), Franklin Resources (A1) and Legg Mason (Baa1), will also benefit.
Assets under management (AUM) will see incremental growth, and management fees will be higher for alternative asset classes — real estate, private equity, direct lending and absolute-return driven strategies — compared with traditional asset classes, such as stocks and bonds.
The report, entitled: "Asset Managers Stand to Benefit from Investor Shift to Alternative Investments", says that increased allocations to alternatives will likely continue as investors, notably pension funds, search for higher returns. This structural shift by pension funds toward greater alternative investments is a credit positive development for skilled alternative asset managers that can mitigate the typically greater risks associated with alternative investments.
"Pension funds are increasingly moving towards alternative investments, which offer higher portfolio returns and better protection against inflation and price volatility,” says Soo Shin-Kobberstad, a senior analyst at Moody's and the author of the report. "In addition, asset classes such as real estate and infrastructure offer long-term asset duration and cash flows that match the profile of pension funds' long-term liabilities."
In response to the shift towards alternative AUM, some traditional fund managers have been acquiring alternative asset-management expertise. In Moody's view, this gives them a strategic advantage, as building alternative asset-management expertise organically takes a long time, given the illiquid nature of and longer holding periods for alternative investments.
Moody's also notes that investment management fees are significantly higher for alternative asset classes compared to traditional asset classes. In addition, alternative investment products offer asset managers performance-based fees while traditional asset classes do not.
