EY: Alternative asset managers perform well amid added pressures

A global survey of alternative asset managers and the investors who allocate to them reveals strength of the industry

EY: Alternative asset managers perform well amid added pressures
Steve Randall

Three quarters of institutional investors feel that their alternative asset managers have met or exceeded performance expectations during a challenging and volatile market period.

It’s one of the key findings in a global survey of investors and alternative asset managers by EY, revealing that the industry has managed to demonstrate its value over recent years, and is well placed for what’s to come.

The most positive feedback on performance is for the private equity sector, followed by real estate strategies, and real assets/infrastructure.

The 2022 EY Alternative Fund Survey also shows that alternative asset managers are working hard to stand out from the crowd amid greater pressure to meet demand for product and investor diversification.

This includes crossover funds. For example, 32% of hedge fund managers increased their exposure to private market investing and more than half of investors are expanding their hedge fund managers' exposure beyond PE and venture-capital style investments.

"The asset management industry is facing a multitude of headwinds and managers are finding themselves shifting and modernizing, both in terms of internal processes and front-office decision-making," said Natalie Deak Jaros, EY Global Hedge Fund Co-leader and EY Americas Wealth & Asset Management Co-leader.

ESG factors

The importance of strong ESG credentials is highlighted with 25% of respondents saying they did not invest in an alternative asset manager because of inadequate policies.

This focus means most managers have implemented corporate ESG policies and more than half are embedding ESG factors into their investment decisions.

Regulatory compliance is also a heightened focus for asset managers.

Among surveyed hedge fund managers, 40% reported that they expect their budget for compliance and/or regulatory processes to increase 5% to 10%, with another 18% of managers expecting their budgets to increase more than 10%.

But 44% of respondents believe the regulatory proposals facing the private fund industry have costs that outweigh the benefits. This means that those with small-to-midsized assets under management (AUMs) may be disproportionately affected by the additional costs.

"While the financial industry has come a long way since 2008, the findings from this year's Global Alternative Fund Survey suggest that there's still much to be done if many of these boutique managers are going to be competitive in an industry undergoing increased consolidation," added Jun Li, EY Americas Wealth & Asset Management Co-leader.