Product Convergence and Growth of Alternatives

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THE CHANGING EMPHASIS OF BABY BOOMERS

The savings of the baby boomer generation makes up a significant proportion of global assets under management. Now entering retirement, it is a generation that is increasingly moving its priorities from capital appreciation to capital preservation. This has come at a time when the bond markets are reaching the end of a multi-year bull run and the equity markets are hitting their limits in this economic cycle. It is a time when the prospect for the balanced portfolio appears challenged.

THE SHIFT TO ALTERNATIVES

Increasingly the investment preference of the baby boomer generation is to turn to Alternative investment products that offer a refined return profile that is lowly correlated to the market. This shift in preference has been picked up by a recent McKinsey study* which estimates that the growth in Alternatives has been twice as fast as traditional long-only strategies. Driven by the investment needs of the baby boomer generation the mainstream Institutional Investors are increasingly adopting Alternatives. McKinsey predicts that this strong trend is likely to continue.

THE REQUISITE FOR THE FUTURE ASSET MANAGER

While the pressure on fees has encouraged Hedge Funds to move into the long-only space, the shift in investor priorities has encouraged traditional Asset Managers to enter the Alternatives space. Asset Managers(traditional or Hedge Funds) who straddle both disciplines with ease are likely to come up with products that best suit the changing investor interests. In fact, the successful future Asset Manager is likely to be one that has expertise across the complete range of investment styles. Only then can Asset Managers arrive at investment solutions that best meet the likes of the wealthy baby boomer generation.

* McKinsey & Company (2014): “The Trillion-DollarConvergence: Capturing the Next Wave of Growth in Alternative
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