Alternative Asset Management in 2020

In a base case, PwC expects that alternative assets increase to 13.6 trillion US-Dollar in 2020. To benefit from this growth in assets, alternatives manager must fulfil some key capabilities to fit in with the changing conditions in the industry.

PwC expects in their study “Alternative asset management 2020: Fast forward to centre stage” that alternative assets will increase to a volume of 13.6 trillion US-Dollar in a base case. In a high case, alternative assets may even grow to 15.3 trillion US-Dollar. According to the study, the high performance of capital markets triggered by the expansion of monetary policy and stable economic growth may contribute to the high scenario. “However, the possible rise of interest rates in the US and Europe, coupled with a normal correction in the capital markets, would support the base case,” says PwC.
PwC finds six imperatives for alternative asset managers:

Alternative asset managers must choose their channels. They will do so by adopting practices from the whole financial industry, developing more sophisticated marketing strategies that focus more on distribution channels and brand recognition, working out which investors they want to serve and focusing systematically on those. Only a small number of large players can afford to serve investors on a wide geographical area with numerous channels and strategies instead of learning to focus. 

While investor will segments further, alternatives manager will do so too. This drives a further evaluation of where an organisation stands now and where it wants to be. To develop the capabilities necessary to reach their desired position, firms can either build, buy or borrow: Builders rely on growing internally and developing capabilities and resources from within their firm. Buyers expand their capabilities across locations and asset classes by acquiring talent, track record and scale overnight. Borrowers partner with other institutions to expand capabilities and distribution channels.

The alternative asset management industry will polarise into standardisation and customisation. Some customers and clients, especially large institutional investors, are seeking for “made-to-order products, providing greater customisation and strategic alignment.” Second, there is an demand for funds that are more focused on outcomes. Third, investors demand standardised liquid alternatives. 

Owners, investors and regulators expect alternatives managers to broaden their range of capabilities and become more effective. This includes becoming more data-informed when making decisions, become more cost effective in their day-to-day business.

Moreover, alternative managers need to allocate resources better. Data-informed decision making will enhance this ability. Furthermore, sourcing strategies will get more efficient. Some asset managers will use outsourcing providers while other will depend on in-house solutions to take advantage of operating leverage.

Although the study points out that digitalisation and data-centricity are key business imperatives to speed information exchange, emphasis must not just be on manipulating data but analysing and reporting it appropriately. This ultimately leads to a better measure of operational processes and enhances key functional areas.