trends in alternative asset management
DESCRIPTION
Trends in Alternative Asset Management. Andrew McCollum Principal, Greenwich Associates. May 2, 2012. Funding gaps remain a problem for U.S. corporations and public funds. U.S. Corporate Funds’ Average Funding Ratio of DB Plans. U.S. Public Funds’ Average Solvency Ratio of DB Plans. - PowerPoint PPT PresentationTRANSCRIPT
Trends in Alternative Asset Management
Andrew McCollumPrincipal, Greenwich Associates
May 2, 2012
Funding gaps remain a problem for U.S. corporations and public funds.
2 CONFIDENTIAL
Source: Greenwich Associates 2011, U.S. IMF-11.Mean calculation excludes reported answers of "0" and / or "None".
U.S. Corporate Funds’ Average Funding Ratio of DB Plans U.S. Public Funds’ Average Solvency Ratio of DB Plans
7.6% actuarial assumption
7.6% actuarial assumption
99% 101%
80%83%
89%
0%
20%
40%
60%
80%
100%
120%
2007 2008 2009 2010 2011
Pro
ject
ed B
enef
it O
blig
atio
n
87% 86%83%
76% 77%
0%
20%
40%
60%
80%
100%
120%
2007 2008 2009 2010 2011
Sol
venc
y R
atio
3 CONFIDENTIAL
Allocations have changed significantly over the past ten years, with allocations to alternatives up dramatically.
47%
15%7%
44%
16%10%
14%
29% 28%34%
17%
33%
Domestic equities International equities Fixed income Alternatives
45%
14%9%
43%
19%11%
17%
31%26% 28%
22%30%
Domestic equities International equities Fixed income Alternatives
42%
12%16%
34%
17%25%
34%26%
20% 22%17%
22%
Domestic equities International equities Fixed income Alternatives
2001 2006 2011
Corporate DB
Public DB
Endowment/Foundation
Source: Greenwich Associates, 2011.
182
17
121
64
37
77
10
19
31
31
22
99
29
118
88
88
116
97
200 150 100 50 0 50 100 150 200
Hedge Fund
Private Equity
Equity Real Estate
International Fixed Income
U.S. Fixed Income
International Equity — Passive
International Equity — Active
U.S. Equity — Passive
U.S. Equity — Active
Number of U.S. Investors
Significantly Decrease Significantly Increase
Allocations to alternative asset categories is expected to increase further in the years ahead.
4 CONFIDENTIAL
U.S. Investors’ 3-Year Institutional Asset Allocation Expectations
Source: Greenwich Associates 2011, U.S. IMF-11.Note: Three year outlook. “No Change” column indicates number of U.S. investors with no allocation changes planned for a given asset class. Results are for corporate and union fund defined benefit plan assets, public fund defined benefit plan assets, and endowment and foundation fund investment pool assets.
No Change
467
489
496
506
496
487
475
459
473
5 CONFIDENTIAL
Most Important Hedge Fund Selection Criteria
55%
63%
23%
31%
20%
14%
16%
14%
9%
13%
41%
21%
58%
44%
37%
41%
39%
38%
37%
30%
0% 20% 40% 60% 80% 100%
Clarity of investment philosophy
Quality of f irm's investment team
Risk management infrastructure
Identif iable source of alpha
Portfolio transparency
Liquidity Terms
Quality of reporting and communications
Separation of investment and operationsmanagement roles
Past investment performance
Fees
Very Important Important
Top Hedge Fund Strategies Currently Employed, by Assets
Source: SEI/Greenwich Associates Hedge Fund White Paper 2011. Source: SEI/Greenwich Associates Hedge Fund White Paper 2011.
To meet with success in the institutional market, firms must align products, business model, and communications with client needs.
5%
8%
10%
13%
15%
27%
33%
42%
53%
82%
Relative value
Commodities/CTA
Fixed incomearbitrage
Market neutral
Special situations
Distressedsecurities
Macro
Credit
Event driven
Long/short equity
6 CONFIDENTIAL
Key Takeaways
▪ Evolving client needs will drive further demand for alternatives products.
▪ Alternatives managers will face increasing competition (and vice versa) from traditional long-only managers.
▪ Increased competition will “institutionalize” the alternatives industry, impacting business models, client servicing, communications, operations, and fees, among other areas.
▪ Alternatives firms must evolve to meet this shifting landscape.
▪ The alternatives industry will require talented – and qualified – individuals to address these challenges.