Willis Towers: RE assets reached $1.4trn globally in 2016

Property accounted for the largest percentage of assets held by the world’s 100 largest alternative asset managers.

Real estate was the most popular investment category among the world’s 100 largest alternative asset managers, according to a new report from London-based advisory firm Willis Towers Watson.

The assets under management held by the world’s largest 100 alternative asset managers rose by 10 percent to $4 trillion in 2016. Of that amount, property managers claimed the largest share – 35 percent – or more than $1.4 trillion in assets.

Private equity managers came in second, accounting for 18 percent, or $695 billion, of the $4 trillion, while private equity fund of funds were 12 percent, or $492 billion. Illiquid credit trailed with 9 percent and $360 billion of assets, while infrastructure made up 4 percent of $161 billion of the AUM held by the 100 managers. Other alternative asset classes covered in the report included hedge funds, funds of hedge funds and commodities.

Illiquid credit was the alternative asset class with the largest percentage increase in 2016, with AUM more than doubling from $178 billion to $360 billion. The firm did not provide the percentage changes for real estate, private equity, private equity fund of funds and infrastructure in the report, and did not respond to inquiries on the matter as of press time.

“Despite the elevated levels of macro and political concerns, long lease property strategies in Europe have continued to see interest from de-risking pension funds given the expected return differential relative to bonds and higher inflation expectations,” said Luba Nikulina, global head of manager research at Towers Watson. “We believe this demand is likely to persist as long as bond yields remain low which makes the ability to source attractive assets in this area ever more important.”

She added: “Private equity has also continued to thrive following the period of strong distributions and investors looking for alpha which is becoming more challenging to achieve with the abundance of capital and limited supply of deals contributing to incredibly rich pricing. Investors are now having to find areas of the market that aren’t as expensive or are viewed as contrarian in hopes of achieving successful outcomes.”

Real estate, moreover, represented 37 of the 100 managers covered in the survey, as well as five of the top 10 managers. TH Real Estate – an affiliate of Nuveen, the investment management arm of TIAA – was the largest real estate manager globally, overseeing more than $105 billion in assets, followed by Blackstone, which managed nearly $102 billion in real estate. Next in line was PGIM, with almost $95 billion, CBRE Global Investors with $78.2 billion and UBS with $78 billion.

Also in the top 10 were: Blackstone as the largest private equity manager, with more than $100 billion in the asset class; Macquarie Group as the biggest infrastructure manager, with $96.2 billion; and Prudential Private Placement Investors as the most significant illiquid credit manager, with nearly $81 billion under management.

When the assets managed by the top 100 managers were broken down by investor type, real estate was the most popular alternative asset for pension funds, insurance companies and sovereign wealth funds, representing 41 percent, nearly 51 percent and 31 percent, respectively, of the total assets managed on behalf of each investor group.

Within real estate, Towers Watson advised investors to exercise caution, particularly when deploying capital in the asset class in the US and UK. “Despite real estate in many regions looking attractive relative to bonds, investors should be patient and selective when investing new real estate allocations at the current time,” the report said. “We believe US and UK markets are at higher points in their real estate cycles, meaning one needs to be increasingly cautious of higher risk property strategies, particularly those using high levels of debt.”