Preqin: Appetite For Alternatives Remains Strong Among Institutional Investors

Aug 21 2015 | 4:43pm ET

Despite ongoing debates over performance and fees, institutional appetite for alternative assets shows no sign of slowing down, according to new data from Preqin. 

Preqin latest Investor Outlook reveals that fully 79% of institutional managers have exposure to at least one alternative asset class. More than 50% had exposure to private equity and hedge funds, 43% to private debt and nearly two-thirds had real estate investments. Approximately 36% had infrastructure exposure.

Preqin noted that although benefits vary significantly between them, reasons often cited by investors for holding allocations to alternative assets include diversification, high returns, reliable income streams and inflation hedging characteristics.

Other key findings of the report:

  • Investment in almost all asset classes is likely to increase over the coming year. In particular, 42% of private equity investors, 38% of private debt investors, and 36% of infrastructure investors plan to invest more capital in the next 12 months. 
  • In hedge funds, a third of investors are looking to invest less capital over the coming year compared to the last 12 months, compared to 19% that are looking to invest more. 
  • The vast majority of investors have a positive or neutral view of each asset class. For investors in private equity and real estate, this stands at 95% and 94% respectively. Conversely, 20% percent of investors in hedge funds have a negative perception of the asset class.
  • 51% of private equity investors and 44% of infrastructure investors are aiming to allocate more capital to these asset classes. 
  • More than 60% of investors in real estate, infrastructure and private debt target returns of at least 8% annually, while just under 60% of private equity investors seek returns of at least 14%.
  • Private debt and real estate have the highest level of investor satisfaction, at 83% and 80% respectively. Meanwhile, only 47% percent of hedge fund investors and 44% of private equity investors feel that terms are becoming more favorable for them. 

“Institutional investors allocate to alternative assets to diversify their portfolios and to achieve a broad range of other objectives,” noted Preqin CEO Mark O’Hare. “The high absolute returns generated by private equity, hedge funds’ ability to reduce volatility, the reliable income generated by private debt and the inflation-hedging characteristics of real assets are just some of the attractions for sophisticated investors. 

“There remains huge scope for the alternative assets industry to grow in future years, both as investors build up existing allocations, and as they also further diversify their portfolios to include a wider range of asset classes,” he continued. 

Preqin surveyed 460 investors in alternative assets for the survey, 43% of which were in North America, 31% in Europe, 22% in Asia and 4% elsewhere. As for investor types, 16% were private sector pension funds, 13% public pension funds, 10% foundations, 10% endowment plans, 10% insurance companies, 9% asset managers, 8% family offices, 6% banks, and the remaining 18% fell into other institutional investor categories.

The full report is available here.


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