Key Takeaways
- • PwC projects the alternative investment industry will expand fivefold to reach US$13.6 trillion by 2020 from the current US$2.5 trillion, with an aggressive forecast predicting US$15.3 trillion under more optimistic conditions.
- • Sovereign wealth funds, public pension funds, and newly wealthy individual investors are the primary growth drivers, seeking steady, strong returns in a transformed economic environment.
- • The industry is expected to undergo significant specialization, with asset managers segmenting into two distinct tracks: dedicated teams serving institutional capital (sovereign and pension funds) and specialized divisions targeting retail wealth, including the mass affluent segment accessing alternatives through new mutual fund structures.
- • Alternative asset management—encompassing hedge funds, private equity, and real assets—will move from niche to mainstream investment strategy, fundamentally reshaping the competitive and operational landscape through 2020 and beyond.
Summary
Professional services firm PwC released a report on Sunday projecting transformational growth for the alternative investment industry over the next five years. The sector, which currently manages US$2.5 trillion in assets across hedge funds, private equity, and real assets, is positioned to expand fivefold to at least US$13.6 trillion by 2020. Under a more aggressive scenario, the industry could reach US$15.3 trillion globally, representing one of the most significant capital reallocation cycles in institutional investing.
The growth narrative is anchored in shifting demand patterns among major investor classes. Sovereign wealth funds, public pension funds, and newly affluent individual investors are actively seeking alternative structures to generate steady and strong returns in an economic environment markedly different from the previous decade. This reorientation reflects both the maturation of alternatives as an asset class and structural changes in global capital markets that have made traditional public equity and fixed-income allocations less attractive to institutional capital.
PwC consultants emphasized that alternative asset management will undergo fundamental transformation as it adjusts to this new operating environment and "moves toward centre stage" in global portfolio construction. The firm anticipates pronounced specialization within the industry, with managers increasingly tailoring service offerings to specific investor segments. Institutional-focused managers will concentrate on serving sovereign funds and pension funds with bespoke strategies, while parallel operations will target high-net-worth and mass affluent individuals through newly developed mutual fund products designed to democratize access to alternatives.
A structural advantage enabling this growth trajectory is the opaque nature of private alternative asset managers. Unlike publicly traded asset managers, hedge funds and private equity firms are not required to disclose assets under management, creating significant variance in industry size estimates across tracking firms. This lack of regulatory disclosure requirements has historically obscured the true scale of alternatives but also provided flexibility for rapid capital aggregation and strategic repositioning as institutional demand accelerates.
The growth narrative is anchored in shifting demand patterns among major investor classes. Sovereign wealth funds, public pension funds, and newly affluent individual investors are actively seeking alternative structures to generate steady and strong returns in an economic environment markedly different from the previous decade. This reorientation reflects both the maturation of alternatives as an asset class and structural changes in global capital markets that have made traditional public equity and fixed-income allocations less attractive to institutional capital.
PwC consultants emphasized that alternative asset management will undergo fundamental transformation as it adjusts to this new operating environment and "moves toward centre stage" in global portfolio construction. The firm anticipates pronounced specialization within the industry, with managers increasingly tailoring service offerings to specific investor segments. Institutional-focused managers will concentrate on serving sovereign funds and pension funds with bespoke strategies, while parallel operations will target high-net-worth and mass affluent individuals through newly developed mutual fund products designed to democratize access to alternatives.
A structural advantage enabling this growth trajectory is the opaque nature of private alternative asset managers. Unlike publicly traded asset managers, hedge funds and private equity firms are not required to disclose assets under management, creating significant variance in industry size estimates across tracking firms. This lack of regulatory disclosure requirements has historically obscured the true scale of alternatives but also provided flexibility for rapid capital aggregation and strategic repositioning as institutional demand accelerates.
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