In the first part of this three part series examining the KPMG women in the alternative investment industry we explored the way that the research was carried out, and the current leadership situation for women in these firms. In this, the second part, we will look at women’s perspectives for what is likely to happen in 2016 in this industry.
“Alternative investments will continue to grow in popularity, and as of the first quarter [of 2015] assets under management were valued at $7.1 trillion.”
McKinsey research (2015) suggests that the increase in the alternatives investment industry is “something of a paradox.” McKinsey explains that the money has come flooding into this sector in recent years, and the sector has increased its size by double since 2005, just 10 years ago. The growth seen has been double the rate of growth in the traditional investments industry. However, at the same time as this tremendous growth has been experienced, returns have reportedly been lower than broad market indices. As McKinsey states, hedge funds created a return of 11 per cent in 2013, yet the Standard and Poors 500 index saw an increase of 30 per cent. This has led some to predict that investors will go elsewhere and the industry will lose its buoyancy. Yet McKinsey research found that the alternatives investment market has a lot of room yet to grow. There is particularly strong interest among both large and small pension funds (but interestingly not medium sized ones) and those with considerable personal wealth are also moving into the market.
Hedge Funds, Private Equity and Venture Capital
Comparing this to what women think who were surveyed for the KPMG report, it was found that women believe that hedge fund performance stands a particularly good chance of a solid performance, and 44% felt “optimistic” about this. However, more women saw the private equity and venture capital as being likely to do less well. The lower figure of 37% believed that private equity would do well, and 34% said the same of venture capital. However, the general feeling was that there was a boom.
As KPMG report, hedge funds had a difficult time during 2014, and women are expecting that these are going to see improvement in the years ahead. Fund respondents in 61% of cases thought the situation would improve in this regard next year. However, investors felt less excited about this, with only half believing the sector would improve. Nonetheless the women felt that there would be some instability in the market. One recommendation from one woman was that the event driven hedge fund strategies, and macro strategies could benefit from the volatile market.
Meanwhile, in the areas of private equity and venture capital performance it was predicted that during 2016 momentum would be maintained. While KPMG reports that there is 1.3 trillion in capital available for private equity investments, just 39% of the respondents felt that deal flow was going to improve through 2016, and in fact many felt it would stay the same way. However, good opportunities were identified by the women in the areas of healthcare and consumer. In these areas private equity may be likely to secure good returns. Another area of considerable potential was reported by the women to be mobile, given the continuous growth in this area.
Competition for Capital and Regulations
Another interesting perspective reported by the women was that it was thought for the most part that competition for capital would become more intense during 2016. Two thirds of the hedge fund and investor respondents surveyed stated that this was what they felt would happen. Conversely, just three per cent had a feeling that competition intensity would lower in the upcoming year.
Regulations were seen to be likely to become increasingly expensive, and complicated for managers at all levels. One suggestion was that managers work out how to communicate this effectively to investors so that they can help investors deal with risk they may be facing. These are difficult conversations, but conversations that nonetheless need to be had. These were some of the highlights of the findings from the women regarding predictions for 2016. The third part of this series will look at views regarding 2020.