A Peek Into the Alternative Assets Management Industry

Fitch Ratings, a global ratings agency, reported that the outlook for seven publicly traded alternative asset managers is “stable”. Indeed, Stephen Ellis of Morningstar has noted that despite the Alternative Asset Management sector being generally misunderstood by the public due to its relative newness and the complexity of its accounting, the industry is actually quite structurally attractive and offers investors opportunities in a fairly valued market.

First, what exactly are alternative asset managers? The publicly traded ones are global institutions that leverage years of experience investing in nontraditional asset classes. They usually provide services to wealthy individuals, private and public pension funds, endowments, foundations, and other institutions.  Counted among the industry’s biggest players are The Blackstone Group, Apollo Global Management, Carlyle Group, Ares Management, Fortress Investment Group, KKR & Co. and Oaktree Capital Group.

The Alternative Asset Management Industry, over the years, has shown an inclination to following a consistent business model when it comes to going public, usually structuring themselves as partnerships, with the investment managers listed as the general partners, and investors in their funds filling the role of limited partners.

Since the recent financial crisis, investors have shown an increase in awareness and interest in the products being offered by alternative asset managers. “[P]ension funds – many of which have turned to riskier and higher-returning assets during the past 10-15 years in an attempt to close funding gaps – [are] leading the way,” reported Ellis.

The performance of the private equity sector has also played an important role in increasing the level of investor interest in the industry. The numbers speak for themselves, as returns for the top quartile of private equity funds have reached 26% and 29% over the past 10 and 20 years, respectively. This has amounted to a sizable increase in the AUM for the industry overall during the past 20 years. Compare those numbers with the single-digit returns for the MSCI World Index over the same period and there really isn’t any question with regards to the performance.

“Given the level of interest that still exists for alternatives, we expect continued healthy levels of growth in AUM for the industry overall going forward,” concluded Ellis.