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May 27, 2024
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Alternative Investments

BCG On Asset Management- Alternative Investments Drive Profitability


In their recent report on the global asset management industry, “The Tide has Turned,” BCG reiterates how the asset management industry can no longer coast on old business models. Market performance has been responsible for 90% of the industry’s revenue growth for nearly two decades. But in 2022, with the collapse of a built-in bull market supporting revenue growth, global assets under management fell by 10 percent to $98 trillion. Coupled with the continuing business pressures of fee compression, rising costs, and technological change, BCG suggests managers transform their organization by focusing on the three Ps:

  • Private Markets – Enter the alternatives space which has high-growth opportunities.
  • Personalization – Implement technologies to personalize client experiences, opening the door to customized products.
  • Profitability – Optimize costs rather than just cut expenses.

Private Markets for as a bright spot for our industry:

Alternative investments, including hedge funds, and private debt and equity, continue to be the major area of opportunity. According to the BCG report, alternatives represented more than $20 trillion of global assets, or 20 percent, under management at the end of 2022, yet accounted for 50 percent of the industry’s global revenues, generating more than $190 billion for the firms that offer them. This strong momentum is expected to continue with an estimated annual growth rate of 7 percent in alternative assets over the next five years. See chart below.

As well as growth in distribution with individuals and institutions continuing allocations to alternatives, and with retail ramping up from near-zero exposure to alternatives, we expect the returns on alternative investing to continue far outpacing traditional returns—further supporting high compound growth rates.

The demand for alternative investments dovetails nicely with the timing of a generation of founders of alternatives firms seeking exit strategies as they transition to retirement. In recognition of the quite different approaches in both culture and investing, typical deals maintain the autonomy of the alternatives firms. Traditional asset management firms looking to buy an alternatives firm are finding there are many excellent alternatives firms open to discussion, and we expect to continue to see increased merger and acquisition activity in this area.

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