Alternatives are coming in from the cold and are becoming a core portfolio constituent for investors, says Joseph Pacini, head of the strategy group at BlackRock Alternative Investors (BAI) for Asia-Pacific ex-Japan.
Low interest rates and ongoing market volatility are leading investors to view their allocations in a different light, he notes. “Many sophisticated investors are saying, ‘alternatives should be part of the core of my portfolio’.”
Investment trends in the prevailing market environment include monetising volatility and participating in Asian corporate bond issuance though alternative funds, says Pacini.
BlackRock’s alternatives business has a presence across the hedge fund, private equity and real estate sectors, as well as exposure to special situations, currencies and commodities.
BAI’s assets total more than $110 billion, with Asian investors accounting for over $20 billion of that. “It's a very substantial part of our business,” says Pacini, who joined BlackRock in March this year from JP Morgan Private Bank to drive the firm’s alternatives business across the region.
“My responsibility is to make sure we are properly addressing opportunities in Asia for our global client base,” says Pacini, “and also representing what we are seeing in global opportunities for our local Asia client base.”
Within the region, the firm's clientele includes large pensions, insurance firms, sovereign wealth funds, family offices and high-net-worth individuals. “Asia's institutional market is the [world’s] fastest-growing,” he adds.
While BAI represents a relatively small portion of the firm’s $3.6 trillion in assets under management, it has been put on a fast track for growth. BlackRock co-founder and president Robert Kapito, in an interview last year with German media, cited a goal of doubling the unit’s assets by 2014.
Moreover, in the hedge fund space, BlackRock ranks among the world’s largest players, with about $28 billion in single-manager strategies and some $20 billion in funds of hedge funds. Its single-manager hedge fund range includes the BlackRock Asian Credit Hedge Fund, which trades corporate bonds in the region, and the long/short equity Pan Asia Opportunities Fund.
However, BlackRock is not as well established in the region’s private equity market, where Carlyle Group, KKR and TPG Capital are reportedly in the process of raising multi-billion-dollar Asia-focused funds.
Instead, BlackRock has been making partnerships to invest in specific markets. In January, it announced an alliance with Indian financial services firm DSP Group to launch a PE fund that will target mid-sized companies in the sub-continent.
More recently, it formed a joint venture with sovereign fund China Investment Corporation (CIC) to invest in private equity deals on the mainland and globally. Pacini declined to comment on the CIC partnership, but noted that “global investors outside of the region clearly see China as a continued growth engine”.
Even though the Chinese economy is set for a slowdown in growth to 7-8% of GDP, “that would be ideal anywhere else”, he says. “So there still is a desire [to have exposure] there.”