Regulatory Pressures Give Alternative Asset Management Deals a Boost

(September 14, 2010) — For the first time ever, alternative asset management deals are expected to outpace traditional fund manager transactions in 2010.

As regulatory pressures, including the so-called Volcker Rule, push banks to rid themselves of hedge fund and private equity assets and managers encounter greater pressure to consolidate to manage costs, alternative asset management deals — including divestments by banks like Citigroup and Bank of America — more than doubled to 52 in the first half of 2010, according to a report by Freeman & Co.

The report concluded that alternative manager deals should exceed 100 by the end of the year, while traditional manager deals may only reach 70-75 transactions in 2010. According to the research by Freeman, an independent advisory firm focused on the financial services sector, the number of mergers and acquisitions globally in the asset management industry in the first six months of this year have jumped 22% from the same period in 2009.

The heightened activity within the alternative space is also reflected among US corporate pension plans. A separate study by SEI of 85 pension executives overseeing assets ranging in size from $25 million to $10 billion has indicated that more US corporate pension plans are investing in alternative investments, with 65% saying they have money invested in those assets, an increase from 53% in 2009 and 51% in 2008. The study revealed the most common alternatives strategies used were real estate, with 77% of those invested in alternatives; private equity (54%), hedge funds of funds (47%), and single-manager hedge funds (30%).

“Funding deficiencies are getting the attention of various stakeholders in companies and, as a result, boards and senior management are looking for long-term strategies as this scrutiny continues,” said Jon Waite, Director, Investment Management Advice and Chief Actuary for SEI’s Institutional Group, in a release. “A plan’s funded status is the top priority as liabilities are being managed within a larger, organizational, risk management framework. In particular, alternative investments are being integrated into the portfolio as another channel for mitigating overall risk, while providing additional return.”