Funds of funds are attempting to move into the BlackRock model of offering clients a variety of alternative asset classes, said Joseph Pacini, head of BlackRock alternative investors strategy group for Asia Pacific.
“Funds of funds are trying to reinvent themselves to a certain degree,” Pacini told sister site PE Asia. “We’ve seen that starting to happen already. But to move into other alternative assets will be challenging.”
BlackRock, the world’s largest money manager, is an advisor across various alternative asset classes including real estate, private equity, hedge funds and forex. The firm is able to manage many asset classes in part because the individual alternative asset teams were once standalone companies, Pacini said.
“Each individual team also has its own investment committee and this makes being an advisor across multiple asset classes more manageable and niche focused.”
“Funds of funds would like to get to that point but it’s very difficult if you’ve been an expert in one asset class. How do you add on real estate, for example, if you’ve only done private equity? There’s a clear desire to move in that direction but it will be difficult to compete with groups already there.”
Last month Blackrock acquired Swiss Re’s private equity and infrastructure fund of funds business, which put assets managed by its private equity unit at about $15 billion.
Pacini said part of the reason for the acquisition was response to client need.
“Our institutional investors in Asia have a conscious desire to increase allocations to private equity. They’ve been disappointed by stagnant or volatile public equities and acknowledge private equity investment is a way to increase returns.”
He added that in general, large institutional investor clients have 20-30 percent allocated to alternatives. Of that, private equity is 5-10 percent, real estate 5-10 percent and a larger portion goes to hedge funds because they are slightly more liquid.