(Refiles to fix spelling of word "grab")
By Sam Forgione
NEW YORK Aug 6 Hedge funds, private equity
funds and other alternative investments will command up to 40
percent of the asset management industry's global revenues by
2020 as investors seek them for safety and consistent returns,
consulting firm McKinsey & Co said on Wednesday.
Alternatives represent one of the biggest growth
opportunities of the next five years and will amass that chunk
of revenues while accounting for just 15 percent of the entire
asset management industry's assets worldwide, McKinsey said in a
report titled "The Trillion-Dollar Convergence: Capturing the
Next Wave of Growth in Alternative Investments."
Alternatives that are marketed to mom-and-pop investors will
remain red-hot, with new cash flows into these funds driving up
to 50 percent of the net new retail revenues that U.S. retail
asset managers will make over the next five years, the report
Investors seek alternatives, which may invest in assets such
as timber or real estate or use tactics such as betting against
securities, for so-called "uncorrelated" returns that do not
move in tandem with traditional stock and bond markets. Fears of
a downturn in stock or bond markets have been known to trigger
demand for alternatives.
Alternatives will account for a big chunk of revenues by
2020 given their fees, said Ju-Hon Kwek, an associate principal
at McKinsey and one of the report's authors. Alternatives
typically charge higher management fees than traditional funds,
while hedge funds and private equity funds also charge
additional performance fees.
Global assets in alternatives hit a record high of $7.2
trillion in 2013 and currently generate nearly 30 percent of the
asset management industry's revenues, the report said. Retail
alternatives, including in mutual fund, closed-end fund and
exchange-traded fund formats, have about $2 trillion in assets
globally, with U.S. retail alternatives accounting for nearly
$900 billion of that sum, the report said.
The report said some investors were seeking alternatives for
their safety as an "insurance policy" against market volatility,
while defined-benefit pension plans were seeking
"higher-yielding alternatives" compared to traditional stocks
and bonds to meet investment goals.
The report said alternatives were a "crucial source of
industry flows and revenues" and that net flows into the
alternatives market globally will grow at an average annual rate
of 5 percent over the next five years, far above the 1 percent
to 2 percent expected annual rate for the asset management
industry as a whole.
The McKinsey report drew on findings from the firm's
2013-2014 Alternative Investment Survey, which polled nearly 300
institutional investors managing $2.7 trillion in assets and
interviewed over 50 investors.
(Reporting by Sam Forgione; Editing by Tom Brown and W Simon)