The majority of investors remain confident in the ability of alternative assets to help achieve portfolio objectives across all alternatives asset classes, and investors plan to enhance their exposure, notes a Preqin study.
After conducting in-depth interviews with over 440 institutional investors, Preqin published a report titled: “Alternative Assets H1 2015” pointing out that the alternatives sector is seeing institutional investors diversifying their portfolios across asset classes including private debt.
Growing importance of alternatives
According to the Preqin report, alternative assets continue to play an important role in institutional investors’ portfolios, with investors increasing weightings to these asset classes. As demonstrated in the following diagram, investors further diversify their portfolios through new allocations to the growing range of alternative asset classes open to them:
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As captured in the following graph, the more established alternative asset classes of private equity, hedge funds and real estate garner a greater proportion of investors’ portfolios than infrastructure and private debt:
However, the report notes allocations to both infrastructure and private debt look set to rise in the coming years, with approximately two-thirds of investors in each asset class indicating they may increase their allocation over the long term:
PE investments lived up to expectations
Diving deep into each of the alternatives asset classes, the Preqin report points out that investors remain largely positive towards private equity, with 92% of respondents indicating that their private equity investments had either met or exceeded their expectations in the last 12 months:
However, the Preqin’s survey reveals that thanks to the bullish performance of public markets through 2014, fewer LPs anticipate their private equity portfolios to outperform the public market by over 400 basis points, compared to the previous two years:
Turning its focus towards hedge funds, the Preqin survey points out that hedge funds struggled to generate strong performance and 35% investors indicated that their hedge fund investments failed to live up to expectations in 2014:
However, the survey notes despite underwhelming performance posted by hedge funds in 2014, the majority of institutional investors appear to be committed to the asset class:
Preqin’s survey reveals that institutional activity in private real estate remained stable in 2014, with a similar proportion of investors committing to funds as in 2013.
Infrastructure and private debt
Preqin’s survey highlights that infrastructure and private debt have more recently emerged as distinct asset classes.
Focusing on infrastructure, the survey notes 57% of investors consider the infrastructure industry positively, and a considerable 67% plan to enhance their allocation to infrastructure over the long term, reflecting the growing importance investors are placing on infrastructure as a part of their overall portfolios:
Highlighting the growing importance of private debt asset class, the survey notes the growth of this asset class has been one of the standout features of the alternative assets industry over recent years. The Preqin report points out that nearly two-thirds anticipate to enhance exposure to the asset class in the longer term: