Real estate shares title as biggest alternatives segment

The value of the real estate held by alternative investment managers currently matches the value of direct hedge fund assets, according to a global assessment by Towers Watson.

In its Global Alternatives Survey published today, the professional services company reported that the global alternative universe had expanded to $5.1 trillion in value from $4.9 trillion one year ago and that the real estate component of that total was 26 percent – the biggest sector alongside direct hedge fund assets, which also accounted for 26 percent. The firm’s survey last year found real estate to be the biggest with 28 percent, some 5 percent bigger than direct hedge funds.

Alternative investment by managers has grown exponentially during the 10 years that Towers Watson has been conducting the survey. This is because more and different kinds of institutional investors have increased or introduced alternative investments in their portfolios, often at the expense of equities. Further, the alternative investment universe has enveloped more asset classes in recent years, adding to traditional asset types like real estate and private equity – asset types like direct hedge funds, infrastructure and commodities.

With 34 percent of total assets, real estate remained the biggest asset class on the books of the top 100 alternative investment managers included in Towers Watson's survey, which collected entries from a total of 578 investment managers. The firm measured the top 100 investment managers as managing $3.1 trillion of assets, and real estate accounted for 34 percent of that total, equal to $1.05 trillion of assets, compared to 23 percent held in private equity and 20 percent in direct hedge funds.

Within the top 25 alternative investment managers, there were 11 real estate investment managers. Macquarie Group, the Australian bank, was the biggest alternatives investment manager with $94.845 billion of infrastructure investments on its books, but it was the only infrastructure investment management platform to make the ranking. 

CBRE Global Investors, with $80 billion of assets under management, was the highest ranked real estate investment manager and the third highest ranked alternatives manager. Other real estate investment management firms to have made the top 25 ranking were AXA Real Estate, Brookfield Asset Management, UBS Global Asset Management, The Blackstone Group, Deutsche Asset & Wealth Management, LaSalle Investment Management, Credit Suisse Asset Management, Morgan Stanley Real Estate Investing, Cornerstone Real Estate Advisors and Prudential Real Estate Investors.

Of the types of capital invested with alternative investment managers, Towers Watson found that pension funds remained the biggest investors, representing 36 percent. Wealth managers represented 19 percent, followed by insurers (9 percent), sovereign wealth funds (6 percent), banks (5 percent), fund of funds (3 percent) and endowments and foundations (2 percent).

This year’s survey took in findings from 90 real estate investment management platforms. Overall, it addressed findings from 578 investment managers from seven different asset classes: real estate, private equity, direct hedge funds, private equity funds of funds, funds of hedge funds, infrastructure and commodities.