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ALTERNATIVE INVESTMENTS


Alternative investments


moving mainstream


Alternative investments are moving increasingly into favor – so much so that perhaps it’s time to find a new term for them. After all, it won’t be long before they are no longer ‘alternative’, but mainstream.


A US$


trillion THE GLOBAL


2.2


HEDGE FUNDS INDUSTRY’S ASSETS UNDER MANAGEMENT IN 2011


lternatives now account for 19 per cent of pension fund assets globally, up from five per cent in 1995, according to the latest Global Alternatives Survey by Towers Watson and the


Financial Times. Australia’s largest investment institution, the A$75


billion Future Fund, has 18.6 per cent in alternatives. It is the third-largest asset class within the fund’s portfolio, marginally smaller than the 21.3 per cent in global equities-developed markets and 19.4 per cent in debt securities. US universities Yale and Harvard (whose


endowments are in many respects similar investment institutions to family offices) have a massive 51.3 per cent and 52 per cent respectively in alternatives.


What are alternative investments? Surprisingly for such a large asset class, there is no globally consistent definition. Nearly all definitions include hedge funds and private equity. Many include absolute return, commodity investments, infrastructure, real estate, forestry and other real assets. Australia’s Future Fund defines alternatives as “skill-


based absolute return strategies and other risk premia providing diversity of return streams”. It lists private equity, property and infrastructure/timberland not as alternatives but as three separate classes (accounting collectively for 15.4 per cent of its overall portfolio allocation). Neither Yale nor Harvard use the word alternatives;


they separately lists the individual asset class or investment strategy. A 2010 survey by Cerulli Associates found consensus


that among key players in the US investment industry, commodities, global infrastructure, private equity, hedge fund strategies and venture capital counted as alternative assets or alternative strategies. Real estate was regarded as a traditional asset class.


102 FAMILY OFFICE: ASIA TOMORROW


Hedge funds The investment industry agrees that hedge funds are a major, fast-growing and barely understood sector within alternatives. Since the GFC, the global hedge funds industry has more than recovered its assets under management to reach a record US$2.2 trillion, from its nadir of $1.4 trillion in early 2009 during the depths of the crisis. Asia only manages around five per cent of


total industry assets. Hong Kong’s hedge funds managedUS$38.3 billion in December 2010, while Australia had $33.2 billion. Singapore $21.6 billion and Japan $11 billion, with another $8.2 billion in other Asian cities. Most of the world’s hedge fund assets are managed in the US or Europe, specifically New York/ Connecticut and London. To put these numbers in perspective, Hong Kong’s


stock market is valued at $US2.3 trillion while Australia’s is $1.3 trillion. Malaysia’s Employees Provident Fund and Singapore’s Central Provident Fund each have around $145 billion in assets.


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