In our previous post "Most Swiss Asset Managers Missed the Alternatives Boat", we saw that managers who moved into alternative asset classes experienced increased revenue growth due to higher AuM margins.
In this update we explore the profits of alternative managers compared to traditional managers.
We see that although alternative managers have historically had substantially higher net profit margins (NPM), the NPM for alternatives is converging to that of traditional managers.
Alternative managers earn higher fees on a unit of AuM than traditional asset classes, although the spread is decreasing.
Alternative managers have charged substantially higher management fees in the past decade.
The trend also shows that alternative fees are converging.
This trend is likely due to higher competition as more managers have sought to capitalize on the opportunities in alternatives.
Net profit margin (NPM) of alternative managers is also higher than for traditional managers but is converging.
Despite higher costs of managing a fund in the alternatives space, alternative managers have experienced substantially higher NPM than their traditional counterparts.
The mean NPM of alternative managers is however more volatile and is converging with that of traditional managers.
Both these observations reflect the findings we see for AuM margins.
Investors have flocked away from fixed income into alternatives.
The low interest rate environment in the past decade has favored alternatives.
Investors increased their exposure to alternatives on the back of decreasing exposure to fixed income.
With a much higher interest rate environment now, it raises the question of another potential shift in allocations in future.
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