In many respects, the most common individual strategic priorities identified by managers are all intertwined. With most managers focused on asset growth, the successful combination of employing technology to drive investment returns in the front office while embracing new technologies and outsourcing capabilities in the back office should create an ideal landscape in which alternative investment managers can thrive.
However, infrastructure is needed to support these new tools, and the right talent model is critical to implementing and harnessing the power of today’s technology. Next-generation technology is also becoming a solution to the challenges that managers are facing both in combating margin pressure and in developing an institutional quality middle and back office that investors are coming to expect.
Asset growth and talent management top the list of alternative fund managers’ strategic priorities
Asset growth continues to be paramount for the success of individual managers and the industry as a whole. The fact that it remains the top priority comes as no surprise as it contributes to the successful financial results of managers, which is necessary to provide funding to accomplish many of the other secondary and tertiary priorities referenced here.
Talent management as a clear second priority is a change from prior years. Evolving product development and disruptive technology are forcing managers to re-evaluate their talent model to make certain their people have the right skills to be successful in this digital era.
Interestingly, the priorities between hedge fund and private equity managers are almost identical. This alignment speaks to the fact that each is facing the same issues as their business models continue to converge.
Investor allocations to alternatives remain stable, with hedge funds currently leading the way
The investors within this survey (excluding fund of fund respondents) indicated that, on average, they have almost a quarter of their assets allocated to alternatives, which is relatively unchanged from 2016.
Investors maintain a diverse portfolio of alternatives, with the current lion’s share going to hedge funds, private equity and real estate. Private credit is a smaller, but rapidly growing, component of investors’ portfolios. It also is an asset class that is often an intersection between traditional hedge fund and private equity managers, with each attempting to extend its investment capabilities and operational infrastructure to tap into investor appetite for these products.