By: AGF Capital Partners | Kensington Capital Partners | New Holland Capital, LLC | SAF Group • January 21, 2025


Alternatives: Trending in the Right Direction

Private markets and hedge fund strategies have seen unprecedented growth over the past decade as institutional capital diversified in the wake of the GFC in a search for uncorrelated alpha generating strategies.

Private markets and hedge fund strategies have seen unprecedented growth over the past decade as institutional capital diversified in the wake of the Global Financial Crisis (GFC) in a search for uncorrelated alpha-generating strategies. As with all asset classes, that growth was further fueled by the expansionary policies of global central banks and world governments – that were first put in place following the GFC and then supercharged during the COVID pandemic – leading to an even greater increase in fundraising and performance during the peak years of 2021 and parts of 2022. Preqin, a UK-based data provider in the alternatives space, predicts global private alternatives and hedge fund assets under management (AUM) to grow from roughly US$13 trillion in 2024 to over US$23 trillion by 2029, an annual growth rate of 11.5%. 

While there’s no denying the beneficial impact of government and central bank policies, the catalysts for investing in alternatives that first drove the portfolio construction decisions of certain U.S. endowments and institutions more broadly continues to hold true today. In fact, if diversification, low correlation to traditional equities and fixed income, and the long-term potential to generate attractive returns is what lit the fuse for institutional adoption of “alts” from the start, they are also the primary factors flaming the more recent acceptance of them among other types of investors.

This is especially the case for family offices that have taken a more prominent role over the past couple of years as institutions slowed down new commitments to alternatives funds. Globally, family offices have allocated 42% of their portfolios to alternative strategies, and that grows to a whopping 59% for U.S-based family offices.

Furthermore, the wealth advisory services channel is arguably the most important growth engine for alternative assets going forward. Retail and high-net-worth (HNW) individuals have become much more inclined to allocate a portion of their portfolios to them in recent years, particularly as more managers launch evergreen fund structures that provide some limited liquidity versus classic closed-ended drawdown vehicles that do not. A recent ISS Market Intelligence survey of Canadian full-service dealers indicated that alternative assets under management grew at a 22% compound annual growth rate between 2019 and 2023.

The past few years of higher inflation and aggressive rate hikes created an especially challenged environment that quickly dampened fundraising and performance across many alternative strategies. However, we also saw certain alternative strategies prove their worth as their performance provided a counterweight to public securities in 2022. Private credit, and more specifically private debt, continued to perform well as it filled a gap in the capital stack as traditional lenders retreated.

Additionally, multi-strategy hedge funds helped to materially limit drawdowns versus public equities. Global investment consultant bfinance’s hedge fund composite index for 2022 showed a positive 3.4% return versus public equities indexes that were all pushing up to 20% losses on the year.

So, what’s next for alternatives now that central banks are back in rate-cutting mode and the new U.S. White House administration seems set, starting in January, to enact sweeping new government policies?

To answer that question and more, we recently sat down with experts from AGF Capital Partners’ Affiliate Managers to examine the issues and trends that have shaped the alternatives market to this point, but are also likely to play a role in the development and performance of some of its key sectors in the future.

Kirk Hamilton, Managing Director at Kensington Capital Partners, provided keen insights into private equity, the largest of the alternative classes by assets under management. Mike Scott, Managing Director at SAF Group, weighed in on private debt, where much attention was directed during the recent rate-hiking cycle, while Scott Radke, CEO and Co-CIO of New Holland Capital, explained the ins-and-outs of the multi-strategy hedge fund universe that has benefited substantially from capital flows in the past few years.

Ultimately, it’s been a tremendous run for alternatives investing over the past 10 years. But as the conversation with our panel articulates, there are reasons to believe that the asset class (along with its various parts) can remain an attractive piece of any well-constructed portfolio and may have plenty of momentum still on its side.

Ash Lawrence,
Head of AGF Capital Partners

 

 

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About AGF Capital Partners

AGF Capital Partners is AGF’s multi-boutique alternatives business with diverse capabilities across both private assets and alternative strategies. Clients benefit from the specialized investment expertise of Affiliate Managers combined with the organizational support and breadth of resources of AGF Management Limited (AGF). With over 18 years average experience, AGF Capital Partners Affiliate Managers’ Kensington Capital Partners Limited, New Holland Capital, LLC and SAF Group manage approximately C$13.5 billion in alternative AUM and fee earning assets on behalf of institutional and retail clients. Affiliate Manager AUM may not be consolidated into AGF Management Limited’s reported AUM. US AUM converted FX rate at December 31, 2024 (1.44).

The term ‘Affiliate Manager’ refers to any partner regardless of relationship structures or revenue sharing agreements. The form of AGF’s structured partnership interests in Affiliate Managers differs from Affiliate Manager to Affiliate Manager. The structure of the relationship with a particular Affiliate Manager, or the revenue that AGF agrees to share in, may change.

Affiliate Managers only provide investment advisory services or offer products in the jurisdiction where such firm, individuals and/or product is registered or authorized to provide such services.

About Kensington Capital Partners

Kensington Capital Partners is a leading independent Canadian investor in alternative assets. Since its inception in 1996, and with offices in Toronto, Vancouver, and Calgary, Kensington has invested over $2.6 billion in private equity, venture capital, and other alternative assets. Kensington’s active management and relationship-driven approach have consistently delivered top-quartile returns for investors. Kensington is affiliated with AGF Management Limited, a $45 billion globally diverse asset management firm serving over 800,000 investors across public and private markets. For more information, visit https://kcpl.ca/

About New Holland Capital, LLC

New Holland Capital, LLC is an alternative investment manager that manages over US$6B in absolute return strategies for institutional clients. The firm seeks to generate alpha across a wide set of diversifying strategies, with a preference for niche, capacity constrained opportunities often with emerging portfolio managers. For more information visit https://newhollandcapital.com/

About SAF Group

Founded in 2014, SAF Group is one of Canada’s leading alternative credit providers having committed approximately $4 billion investment capital across 50+ transactions to date. SAF’s team manages structured credit and equity investments across various industries. With 40 professionals across offices in Calgary and Vancouver, SAF leverages a deep bench of investment professionals to provide flexible and long-term capital solutions to public and private corporations while providing stable and attractive risk-adjusted returns for investors. For more information visit https://safgroup.ca/

The views expressed are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.

Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of January 9, 2025. It is not intended to address the needs, circumstances, and objectives of any specific investor. The content of this commentary is not to be used or construed as investment advice, as an offer to buy or sell any securities, and is not intended to suggest taking or refraining from any course of action. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF and Affiliate Managers accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein.

This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein.

AGF entities only provide investment advisory services or offers investment funds in the jurisdiction where such firm, individuals and/or product is registered or authorized to provide such services.

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Publication date: January 21, 2025.