Alternatives rising


    Globally, assets under management in alternative classifications covering retail – oriented mutual funds and ETFs, including Ucits – are $522bn (£341bn) as at the end of quarter one 2013. As we stand today the US and European region, including the UK, have 92 per cent of those alternative assets domiciled in their regions at approximately $190bn (£124bn) and $290bn (£124bn), respectively. Asian markets have not seen the pickup in alternatives adoption as yet, but they are certainly exhibiting innovation in pursuit of income, as seen with products such as double and triple-decker funds. So the seeds have been sown and the view from researchers in the regions is that growth in these products is on the up.

    Since the bottom of the crisis four years ago in March 2009, assets in alternatives have swelled from $199bn (£130bn) – a compound annual growth rate of nearly 28 per cent. Approximately $45bn (£29bn) of inflows to alternatives have taken place so far this year alone. That said, it is a number coming off a staggering low that resulted from a run to the exits following the financial crisis.

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    Back in March 2008 the figure in alternatives stood at $309bn (£202bn), which results in a much more tepid compound annual growth rate of 11 per cent. Amazing how different those numbers can be, but one must consider the immense shock to all risky asset classes during that time – a shock from which active equity products in particular are only recently showing signs of emerging. In fact, given the flow performance of active equities – one of the primary revenue-driving product lines in the industry – the emergence and relative resilience of alternative products has provided a much-needed boost to help sustain many business models.

    Looking at the individual product strategies, the clear star early in the alternatives story has been absolute return funds. In this post-financial crisis era, with low interest rates, high risk anxiety and demand for low-risk, high income-generating products, many of the absolute return strategies offered in the market seem to fit the bill. Indeed when the other distinct alternative strategies – global macro, market neutral, event-driven, long-short – are stripped from the numbers, absolute return has maintained a fairly consistent level of two-thirds of the total assets under management dating back to the 2008 pre-crisis numbers.

    The lower-risk absolute return strategies denominated in dollars and euros have $76bn (£50bn) and $50bn (£33bn), respectively, and consumed nearly 40 per cent of the total $330bn (£216bn) invested in absolute return strategies through quarter one of 2013. Only market-neutral strategies at $40bn (£26bn) of assets under management manage to muscle their way into the dominant numbers attained by absolute return products.