Managing allocations to alternatives, particularly illiquid or private-market investments, places a considerable and often disproportionate burden on institutional investors’ governance budget. Yet, despite this, the demand for alternatives such as infrastructure, private equity and real assets continues to increase as investors seek to exploit their long-term investment horizon and need for inflation hedging.
Yet, many investors face a governance dilemma when it comes to these alternative asset classes. Small and medium-sized institutions often lack the governance resources to effectively select and conduct due diligence on illiquid alternatives and then carry out ongoing monitoring. For others, the amount being allocated to alternatives remains relatively small, making it increasingly difficult to achieve real diversification.
Hence a group of products offering access to a range of alternatives within one vehicle is finding increasing traction among institutions. The number of multi-alternatives funds available to UK and European investors is on the increase, but timing remains critical to success.
In Europe, Morgan Stanley Investment Management (MSIM) introduced the first multi-alternatives fund in 2006 and now manages $5.5bn in this strategy. Today around six products have emerged into the European market from managers including JP Morgan Asset Management (JPMAM) and Partners Group.
“Interest in these funds started picking up in 2008/09 as investors saw these approaches provide decent downside protection,” says Roberto Cagnati, portfolio and risk management at Swiss investment manager, Partners Group, which offers a multi-alternatives approach in The Partners fund.
“Interest has really increased in the last two years.” The fund has more than tripled assets over this period, with current AUM of $650m, versus $200m two years ago. “This is driven by smaller, private sector pension funds, with around 40% UK-based clients,” Cagnati says.
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