Investor Sentiment Divided Over Alternative Assets by Preqin
Private equity and real estate investors most positive; natural resources and hedge fund investors more negative
The Preqin Investor Outlook: Alternative Assets, H1 2016 finds that investors are mixed in their attitudes to the alternative assets industry. The majority (65%) of investors holds a positive general perception of private equity, and only 6% have a negative perception. However, more hedge fund investors hold a negative view of the asset class (38%) than have a positive perception (32%), and almost twice as many natural resources investors currently have a negative perception (33%) compared to those who are positive about the asset class (17%).
This reflects the differing performance between the asset classes. Private equity and real estate have returned record amounts of capital to investors in recent years, and accordingly 39% of real estate investors and 30% of private equity investors feel their expectations have been exceeded, while only 11% and 6% respectively feel their expectations have not been met. By contrast, natural resources and hedge funds have faced challenging performance conditions over the past year, and 62% and 49% of investors respectively in these asset classes feel that their performance expectations have not been met.
Other Alternative Assets Key Facts from the H1 2016 Investor Outlook:
- Next 12 Months: Thirty-two percent of hedge fund investors and 41% of natural resources investors plan to allocate less capital to those asset classes over the next 12 months. A smaller proportion (25% and 24% respectively) plan to allocate more, making them the only asset classes to see a net decrease.
- Long-Term Plans: In the longer term, investors to all asset classes plan to increase their allocations. However, a significant 23% of natural resources investors and 26% of hedge fund investors plan to decrease their allocations, more than in any other asset class.
- Target Allocations: An increasing proportion of investors across all asset classes now hold significant target allocations. Forty-two percent of private equity investors, 48% of real estate investors, and 66% of hedge fund investors have target allocations to the asset class of more than 10%.
- Investor Engagement: Seventy-nine percent of institutional investors now invest in alternative assets, with 42% investing in three or more different asset classes. However, only 5% of institutional investors currently invest in all alternative asset classes.
- Asset Classes: Two-thirds (66%) of institutional investors currently allocate to real estate, the highest proportion of any asset class. This is up from 59% of investors that held an allocation to the asset class at the start of H2 2015.
“The alternative assets industry continued to grow in 2015, with fund managers now managing an all-time record $7.4tn. This increase in assets has been driven by expanding investor demand, as institutions globally look to further diversify their portfolios with an ever wider range of asset classes to generate strong returns, reduce volatility, act as an inflation hedge and deliver reliable income.
However, investor sentiment is not uniformly positive about alternative assets. Although many investors plan to increase the amount of capital they invest in asset classes like private equity or infrastructure, a significant proportion plan to limit their commitments to natural resources and hedge funds. In this challenging fundraising environment, fund managers will have to be able to respond to investor concerns in order to attract fresh capital.”
Mark O’Hare – Chief Executive, Preqin