Alternative Asset Exposure of US- and Europe-Based Wealth Managers – April 2015

by Joshua Snow

  • 10 Apr 2015
  • PE
  • HF
  • PD
  • RE
  • INF

Following on from last month’s blog on the alternative asset coverage of investment consultants based in Europe and the US, this blog will investigate how wealth managers in the same regions allocate their clients’ capital to private equity, real estate, hedge funds and infrastructure. Within the private client space wealth managers, private banks and family offices are all responsible for helping investors pursue investment goals by advising on and aiding the implementation of asset allocation and strategy.

The Preqin database tracks a total of 467 wealth managers operating in the US and Europe (297 in the US and 170 in Europe) with exposure to one or more alternative asset classes. The chart below shows the state of their current exposure to the alternatives space; the established alternative asset classes (private equity, real estate and hedge funds) dominate asset allocation strategies in both regions.

It is apparent that a larger proportion of US-based wealth managers invest in alternative assets than their Europe-based counterparts. This can be partly explained by a comparison of the European and US markets, with the latter being larger and in some respects more developed. These two factors could give investors based in the US more confidence when placing their capital into alternatives than Europe-based investors; the greater longevity of alternatives in the US may cause investors to feel more at ease with being exposed to such investments.

For private equity and real estate investments, the gap between the proportions of wealth managers actively investing in each region stands at roughly 15 percentage points; however, this difference is almost non-existent for hedge funds. The popularity of UCITS funds among Europe-based investors is a possible explanation for the strong interest in hedge funds. A recent Preqin factsheet looked at how UCITS funds offer investors reduced volatility compared to regular hedge funds. With ongoing uncertainty in the Eurozone, such funds enable the use of alternative strategies while promising investors lower risk. For wealth managers, this is particularly beneficial, as capital preservation remains a key consideration in the private client space.

As a less mature asset class, infrastructure still lags behind. However, its prominence is growing; on average one in four wealth managers now invest in the asset class. Investor appetite in this area (as discussed in the 2015 Preqin Global Infrastructure Report) is higher in Europe than the US due to the larger infrastructure landscape on the continent.

There is no doubt that alternative investments are becoming more widely accepted by wealth managers worldwide and, on their current trajectory, they will become an ever more common addition to their investment portfolios. The emergence of the smaller asset classes will continue to progress gradually; they seem to be making some headway as investor preferences continue to develop and mature.  

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