A predicted rise of investment in alternative assets is expected to offer significant opportunities for Guernsey as a premier location for alternative asset funds and fund managers, in the coming years.
According to 'Alternative Asset Management in 2020: Fast Forward to Centre Stage', a report recently published by PwC, investments in alternatives could double from their current level to reach US$15.3 trillion by 2020 if the high performance of capital markets continues to be driven by accommodative monetary policy and stable GDP growth, or reach US$13.6 trillion if interest rates in Europe and the US rise and capital markets undergo correction.
Roland Mills, Director at PwC in Guernsey, said: "Given the bulk of their funds business is in alternatives, for the Channel Islands, these trends represent real opportunity."
PwC said growth in alternative assets will principally be driven by three key trends: a government-incentivised shift to individual retirement plans; an increase in the number of high-net-worth-individuals from emerging populations; and growth in sovereign investors, expected to come from the SAAAME region (South America, Asia, Africa and the Middle East).
"The shift in global economic power from developed to developing regions will drive continued focus on sovereign investors, fast-growing institutions and the emerging middle classes in new markets. New markets and untapped investor types will open up if alternative managers can develop the products and access the distribution channels to tap them," said Mr Mills.
By 2020, PwC predicts there will have been a fundamental shift towards alternative investments by many sovereign and public pension funds. By 2020 it is expected that global pension fund assets will have reached US$56.6 trillion, with alternative assets expected to play a considerably larger role in their asset allocation mix. PwC expects alternative asset managers to continue to move into areas traditionally dominated by banks, such as lending, securitization and financing as the funding gap in the world's economies continue to present considerable new opportunities. Others will create partnerships with banks and the largest institutional investors, providing integrated expertise in managing new asset classes and building customized products.
Mr Mills added: "Most firms will recognise that success in generating alpha - measuring performance on a risk-adjusted basis - does not on its own guarantee success as an organisation. Those managers who are looking not just for growth but for sustainable growth, will develop their infrastructure, have a clear strategy and create robust organisational structures to exploit the opportunities that will emerge in the coming years.
"Whilst the mega-managers may focus on a multi manager strategy and building a global distribution platform, for many managers the focus will need to be on driving alpha, sticking to their core strategy and being able to clearly explain that strategy to the investors they are targeting. If they do this there is a bright future for the independent boutique alternatives' manager."
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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