Some asset owners and money managers are starting to tinker with the traditionally high-fee alternative investment model.
Asset owners have been talking about investing directly for years, but many lacked the funding to pay market prices to bring alternative investments in-house. Attempts to form consortiums also have stumbled. Now, investors and managers are taking a different approach, focusing on their advantages aside from their capital and, in some cases, joining with like-minded asset owners on investments.
One novel approach is a joint venture formed last month by the Alaska Permanent Fund Corp., the Public Institution for Social Security of Kuwait and RPMI Railpen to invest in new private equity and alternative investment managers.
Wafra Group, which is owned by the Kuwait entity, is the investment manager.
Institutional investors have used a similar approach to invest in real estate with money managers and/or operators. For private equity, a joint venture will enable institutional investors to accomplish two goals: make direct private equity investments without building a large staff and create a direct relationship with new managers.
That should increase investor control and create better alignment between them and managers, officials from the institutions said. It should also help save on fees, a subject of keen interest across the industry.
Investing in alternative investments "is not a fair game," Ashby Monk, executive and research director at Stanford University's Global Projects Center, told the investment committee of the $231.6 billion California State Teachers' Retirement System, West Sacramento, on Feb. 7.
Mr. Monk moderated a panel discussion on ways to expand co-investment and direct investment in alternative investments.
"We have enriched Wall Street to the extent that is astounding" from fees paid by limited partners pursuing risk-adjusted returns, Mr. Monk said. As a result, asset owners worldwide — including CalSTRS — are now talking about shifting to new models that would generate returns in the private markets for investors while keeping them fully aligned with managers, portfolio companies and beneficiaries, he said.