Alternative appetite continues to grow
November 29, 2017

More investors are expressing an interest in alternative investments, according to a new research paper commissioned by BNY Mellon last month. The paper, based on surveys of 450 large institutional investors, tells of a 14 percent jump in investors who expect allocations to alternatives to increase over the next 12 months, up from 39 percent reported in the previous version of the survey published in 2016. BNY Mellon also predicts that alternative assets under management will surpass the current level of US$7.7 trillion in 2017 [the current level has been publicly reported by Preqin]. A minority of survey respondents, 12 percent, predict alternative asset allocations will fall next year.

As demand for alternative investments is expected to increase next year, both investors and fund managers surveyed expect service and technology innovation to be the driving force in the industry.

"Alternatives have been generating strong returns at a time when traditional investment classes have underperformed," said Chandresh Iyer, CEO, Alternative Investment Services, BNY Mellon. "No sector is immune from technology's transformative effects and fund managers need to become disrupters if they are going to thrive."

According to the survey findings, significant change in alternatives is looming as demand for high-performing asset classes reshapes how assets are structured and securitized on the one hand, and how they are managed and serviced on the other. Those surveyed predict that the two most significant trends in the alternatives space over the next 12 months are increased indexing – cited by 52 percent – and increased asset flows from financial advisors and high net worth individuals (HNWIs), cited by 38 percent. Most indexing products for alternatives are structured as exchange-traded funds (ETFs) while larger alternatives managers are also offering index-type alternatives exposure specifically targeting to the growing HNWI market. The ability of these groups to capture this expanding market is enabled by increasingly sophisticated technologies and the rise of robo-advisers.

Other key findings from the study include that the balance between asset classes is expected to remain stable, with private equity having the highest share (26 percent) of institutions' alternative assets – and the highest levels of outperformance versus expectations – followed by real estate (25 percent), private debt and loans (23 percent), infrastructure (19 percent) and hedge funds (7 percent). Within this stable balance, however, respondents expect to see new products emerge to meet investor demand.





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More investors are expressing an interest in alternative investments, according to a new research paper commissioned by BNY Mellon last month. The paper, based on surveys of 450 large institutional investors, tells of a 14 percent jump in investors who expect allocations to alternatives to increase over the next 12 months, up from 39 percent reported in the previous version of the survey published in 2016. BNY Mellon also predicts that alternative assets under management will surpass the current level of US$7.7 trillion in 2017 [the current level has been publicly reported by Preqin]. A minority of survey respondents, 12 percent, predict alternative asset allocations will fall next year.

As demand for alternative investments is expected to increase next year, both investors and fund managers surveyed expect service and technology innovation to be the driving force in the industry.

"Alternatives have been generating strong returns at a time when traditional investment classes have underperformed," said Chandresh Iyer, CEO, Alternative Investment Services, BNY Mellon. "No sector is immune from technology's transformative effects and fund managers need to become disrupters if they are going to thrive."

According to the survey findings, significant change in alternatives is looming as demand for high-performing asset classes reshapes how assets are structured and securitized on the one hand, and how they are managed and serviced on the other. Those surveyed predict that the two most significant trends in the alternatives space over the next 12 months are increased indexing – cited by 52 percent – and increased asset flows from financial advisors and high net worth individuals (HNWIs), cited by 38 percent. Most indexing products for alternatives are structured as exchange-traded funds (ETFs) while larger alternatives managers are also offering index-type alternatives exposure specifically targeting to the growing HNWI market. The ability of these groups to capture this expanding market is enabled by increasingly sophisticated technologies and the rise of robo-advisers.

Other key findings from the study include that the balance between asset classes is expected to remain stable, with private equity having the highest share (26 percent) of institutions' alternative assets – and the highest levels of outperformance versus expectations – followed by real estate (25 percent), private debt and loans (23 percent), infrastructure (19 percent) and hedge funds (7 percent). Within this stable balance, however, respondents expect to see new products emerge to meet investor demand.



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