Greater appetite for alternatives driving demand for new technologies and services, according to new BNY Mellon survey of 450 large institutional investors
Vast majority of investors see predictive analytics (96%) as driving force behind the alternative assets industry in the years to come, followed in importance by cloud technology (79%) and big data analytics (67%)
NEW YORK, Nov. 29, 2017 /PRNewswire/ -- A new research paper, based on surveys of 450 large institutional investors, commissioned by BNY Mellon last month, found a 14% jump in investors who expect allocations to alternatives to increase over the next 12 months, up from 39% 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. [Editor's Note: the current level has been publicly reported by Preqin.] A minority of survey respondents, 12%, 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."
When 100 alternatives fund managers in the survey were asked [Editor's Note: refer to survey methodology boilerplate below], all but two said they are feeling pressure to offer new operational solutions. Sixty-eight percent said that they will look to offer lower fees in the next 12 months, while 71% plan to offer greater transparency. "In the hunt for value in alternatives, investors are pushing for greater control and transparency while continuing to press on fees. Fund managers have to get creative to respond," added Iyer.
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% – and increased asset flows from financial advisors and high net worth individuals (HNWIs), cited by 38%. 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.
"As financial intermediaries, we need to adapt quickly in responding to both investor and fund manager needs," said Alan Flanagan, global head of private equity and real estate fund services, Alternative Investment Services, BNY Mellon. "Dynamic portfolios of complex alternatives require a high level of data and operational efficiency from all parties in the value chain."
Medita Vucic, Group Manager for U.S. Financial Institutions in BNY Mellon's Corporate Trust business added, "Robust growth in alternative assets means that trustees need to bring new knowledge, creativity, and flexibility to navigate new and complex structures."
Other key findings from the BNY Mellon study included that the balance between asset classes is expected to remain stable, with private equity having the highest share (26%) of institutions' alternative assets – and the highest levels of outperformance versus expectations – followed by real estate (25%), private debt and loans (23%), infrastructure (19%) and hedge funds (7%). Within this stable balance, however, respondents expect to see new products emerge to meet investor demand.
"With new demand, the bar for seamless operational support in alternatives will get even higher," concluded Peter Salvage, global head of hedge fund services, Alternative Investment Services, BNY Mellon. "Alternative investment managers need a full and integrated range of services, including custody, cash management, accounting and administration, and investor services so they can focus on their investments rather than the details of fund operations."
About the survey
BNY Mellon commissioned FT Remark to interview senior executives from 450 large institutional investors to understand their strategy for allocating funds to alternative investments (defined as private equity, hedge funds, real estate, infrastructure and private debt/loans). Respondents spanned pension funds (30%), investment managers (25%), endowments/foundations/sovereign wealth funds (25%), and insurance funds (20%). The survey sample was global: Americas (38%), EMEA (38%), and Asia-Pacific (24%).
Of the 450 investors surveyed, 100 alternative fund managers were interviewed separately to understand how they are reacting to a changing regulatory landscape and increasing demands from their institutional investor client base. This survey sample was also global: Americas (39%), EMEA (38%), Asia-Pacific (23%).
About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Sept. 30, 2017, BNY Mellon had $32.2 trillion in assets under custody and/or administration, and $1.8 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.
Contact:
Cheryl Krauss
BNY Mellon Investment Services
[email protected]
+1 212-635-8176
Frank Pinto
BNY Mellon Investment Services
[email protected]
+1 917-309-1065
SOURCE BNY Mellon
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