North America remains the dominant region in global asset management, attracting the majority of capital from international investors. As of December 31, 2023, North America accounted for 60.8 percent of the $128 trillion in assets managed by the world's 500 largest asset managers, amounting to approximately $77.8 trillion. This marks a significant increase of 15 percent from the previous year, highlighting the region's growing appeal in the global financial landscape.
Equity and fixed income remain the predominant asset classes, collectively representing 77.3 percent of total assets under management (AUM). Specifically, equity constitutes 48.3 percent, while fixed income accounts for 29.0 percent. This distribution has remained relatively stable, with only a slight decrease of 0.2 percent from the previous year.
However, there has been a notable increase in the allocation to alternative investments, which grew by 22.4 percent in 2023, despite still representing a modest 8.3 percent of the average large manager's portfolio. Equities, including Real Estate Investment Trusts (REITs), also saw a significant uptick in allocation, rising by 19.5 percent. Cash holdings experienced a substantial increase of 15.2 percent, indicating a cautious approach among investors amid fluctuating market conditions. In contrast, fixed income and other asset classes, such as infrastructure and commodities, saw more modest growth rates of 8.3 percent and 13 percent, respectively. This diversification reflects a broader trend among institutional investors seeking to hedge against inflation and enhance portfolio returns through alternative assets.
Passive investment strategies have become increasingly prevalent, accounting for over one-third of AUM among the largest firms, reaching 33.7 percent. This represents a 6.1 percent increase in the share of passive investments, coinciding with a 2.9 percent decline in active strategies. The shift towards passive management is driven by institutional investors' focus on cost control and the growing capabilities of passive managers to offer customized solutions, such as factor-based strategies and theme-based funds.
Despite the rise of passive strategies, active management continues to play a crucial role in the portfolios of large asset managers, with nearly two-thirds of assets managed by the world's largest firms remaining in active strategies. This highlights the ongoing demand for active management, particularly in private equity, which is predominantly actively managed. This dual approach allows investors to balance the benefits of cost-effective passive strategies with the potential for higher returns offered by active management.
Institutional investors are increasingly interested in diversifying their portfolios, particularly through private equity and real assets. Private equity has gained traction as a viable option for mitigating risks and enhancing returns. The emphasis on diversification is also driven by the desire to find a hedge against inflation, leading to increased allocations to infrastructure and other tangible assets.
The trend towards private equity reflects a broader recognition of the importance of alternative investments in achieving long-term financial goals. As the asset management landscape continues to evolve, the interplay between traditional and alternative investment strategies will likely shape the future of capital allocation on a global scale.