Investors are increasingly tuned into overall outcomes as opposed to simply raw performance of alternative investment fund managers, and are demanding better and customised strategies, according to a new survey by AIMA and PwC.
Alternatives are investments in assets other than stock, bonds and cash. Investment tools used are different from more traditional methods and help to generate lower risk and enhance returns. Approximately 25 per cent of Irish domiciled funds are AIFs as of June 2018.
The survey found that investors are expecting considerably more from their alternative fund providers than in the past. The report, ‘Global Alternatives Distribution Survey 2018: The right strategy, at the right price’, assesses the impact of this changed investor behaviour and expectations on alternative fund distribution models.
Alternative fund managers surveyed cited performance, investment strategy and manager experience as the most important factors for investors. These factors put the onus on fund managers to produce strategies that are more tailored to each client and more outcome-orientated.
The slow adoption of technology for distribution within the alternative funds industry is reflected in survey findings. Alternative fund managers continue to rank face-to-face contact as the most important communication tool when engaging with investors, and rank fund managers reaching out to engage with investors as the most useful distribution channel.
It is a highly competitive market. With costs of managing alternative investment firms and funds rising in areas such as investment in new technology and demand for proven investment skill, it is possible that fees may have reached their low point. Over 70 per cent of alternative fund managers surveyed identified that they are not planning on lowering their fees in the near term. But some 20 per cent confirmed that they would lower their fees either to attract new investors or to retain existing ones.
Jack Inglis (pictured), AIMA CEO, says: “The survey reveals investors today demand more from alternative fund managers. Central to this change is the shift from a fund product-led industry to a solutions-based one. It is therefore crucial that managers identify the individual needs of clients and consistently offer the performance and flexibility required to meet them.
“To retain competitive advantage and distribute effectively, alternative investment managers must articulate their value proposition with vigour and clarity, focussing specifically on their ability to deliver performance, strategy, consistency and partnership as a package at the right price.”
Mike Greenstein, PwC US & Global Alternative Asset Management Leader, says: “The survey responses show that the alternative funds industry is continuing to change fast. Investors are hyper-sensitive to value for money, and keenly aware of paying only for alpha, not for beta. And they want all this at fee levels that many in the alternative investments industry would not have considered a decade ago. Of course, this has significant distribution implications for alternative fund managers. They must adapt to keep pace with these growing demands, examining all aspects of their business and marketing models and making changes where they can.”
