Alternative investments including hedge funds and private equity are attracting ever increasing interest as institutional investors, affluent individuals and even retail customers seek to diversify their portfolios and secure potentially higher returns than conventional equity or fixed-income funds.
Key developments include the rapid growth in hedge funds in Europe and the extension of investment strategies into less common asset classes such as reinsurance and loan origination. Such movements are beginning to blur the lines between the hedge fund and private equity sectors. In turn, many private equity funds are looking to broaden their focus and leverage their financial engineering expertise into new areas such as closed life insurance books. Among property’s benefits as an alternative investment, its cycle tends to lag the economic cycle, so its correlation with equity markets is relatively low. New investment opportunities include the emerging markets of Eastern Europe and South Asia.
However, the expansion and maturing of the alternative investment sector brings heightened challenges including mounting risk, competition and regulatory focus. In particular, an increasingly institutional investor base is likely to demand more systematic and transparent frameworks of control, governance and financial reporting. The increasing breadth and complexity of the investments may also require ever more sophisticated information systems and their integration into sound and cost competitive business operations.
PricewaterhouseCoopers is a leading consultant to both traditional and alternative investment managers worldwide, offering co-ordinated audit, tax and advisory services, underpinned by the reach and local knowledge of its global network.
