Boston Consulting Group (BCG), a global management consulting firm has predicted that revenue from alternative assets such as private equity, hedge funds, and real estate assets will grow to more than half of the global revenue in the next five years.
This is according to the 20th edition of BCG’s annual study of the assets industry titled ‘Global Asset Management 2022: From Tailwinds to Turbulence’.
“Emerging trends that are expected to shape the future include an increasing shift of portfolios into alternative assets in the pursuit of higher returns compared to publicly-traded markets.
“Alternative products represented more than 40 per cent of total asset management revenue in 2021, despite comprising less than 20 per cent of global AuM. This trend is expected to continue over the next five years, with revenue from alternatives forecast to grow to more than half of all global revenues in the industry by 2026.
“Over the next five years, we expect the revenue from alternatives to grow to more than half of all global revenues, thanks in large part to the fees that alternative assets command,” the report stated.
Moreover, with $100 trillion to $150 trillion in capital deployment required to reach net-zero goals by 2050, demand for sustainable investments represents an opportunity that will dominate the sector in both the short and long term.
Roughly, $20 trillion to $30 trillion is expected in bond and equity allocations for asset managers, much of it frontloaded over the next few years as more investments flow into climate-transition projects.
Partner and managing director in BCG Nigeria, Stefano Niavas, said: “Africa’s economy continues to be attractive to private capital investors who are seeking huge returns and Nigeria tops the list of countries that had remarkable private capital inflow in 2021.
“A larger share of these funds was invested into venture capital assets followed by infrastructure and then private equity. About 145 Venture Capital deals were reported in Nigeria in 2021, with a total value of $1.1 billion, according to African Private Equity & Venture Capital Association (AVCA).”
He stated that, “this is a wake-up call to assets fund managers to take advantage of this trend and position themselves for an early win in this dynamic asset management industry as alternative products promise better performance.”
Also, a BCG managing director and partner, who co-authored the report, Chris McIntyre, said: “the incredible market run that has fuelled the performance of the asset management industry over the past 15-plus years has been a double-edged sword.
“On the one hand, it has provided strong tailwinds for the sector, but it has also challenged innovation, allowing the market to be dominated by legacy products that benefit from the compounding effect of returns on underlying assets. There are signs that these trends are beginning to shift, and the ensuing turbulence is an opportunity as well as a challenge for industry players.”