Preqin Survey: Alternative Investors Face Difficulty Finding Right Opportunities

Sep 8 2016 | 9:17pm ET

Investors across all alternative asset classes are finding it harder to source attractive investment opportunities than twelve months ago, according to a new survey from industry data provider Preqin.

Preqin’s survey of more than 490 institutional investors globally revealed that while alternative assets remain a crucial component of many portfolios, investors are finding it difficult to sort through the record-high 2,798 private capital funds in market and 13,725 hedge funds open for investment. 57% and 54% of real estate and infrastructure investors, respectively, are finding it harder to find attractive opportunities, while the numbers for private equity and hedge fund investors are 47% and 46%, respectively.

Private capital investors generally feel the balance of power with their fund manager is shifting towards them, Preqin’s survey noted, although some aspects of the fund selection and marketing process remain viewed unfavorably. For instance, fund terms remain a key issue across the industry; at least 80% of investors across all asset classes stated that they had previously decided not to invest in a fund before due to the proposed terms, while more than a quarter in each asset class said they frequently did so. 

Preqin’s survey also revealed that investors feel firms must work harder when promoting their funds. In excess of a third of investors across the alternatives spectrum commonly find that fund marketing documents do not meet their needs. Notably, almost 10% of investors in real estate, hedge funds and natural resources stated that fund marketing documents always fail to do so, Preqin said.  

Other Key Facts from Preqin’s Investor Outlook: Alternative Assets H2 2016: 

  • Participation in Alternatives: Seventy-nine percent of institutional investors surveyed by Preqin participate in at least one alternative asset class, while 47% invest in at least three. Larger investors are more likely to invest in alternatives; 88% of those managing at least $1bn in assets participate in the industry. 

  • Allocation Plans: For the first time ever, more investors intend to reduce (33%), than increase (17%), their allocation to hedge funds, in the long term. Private debt and private equity, however, can expect growth in with 67% and 56% of investors planning to increase their allocation to the asset classes respectively. 

  • Target Allocations: Nearly a third of hedge fund investors (29%) have target allocations of 20% or more of their AUM, the highest proportion of any alternative asset class. Conversely, nearly half of infrastructure investors surveyed (49%) are targeting an allocation of less than 5% of their total AUM. 

  • Investor Satisfaction: More than two-thirds (71%) of investors hold a generally positive opinion of the private equity industry, the highest proportion of any asset class, followed by private debt (61%). While a quarter of investors hold a negative opinion of natural resources, nearly half (46%) are unhappy with hedge funds. 

  • Fund Performance: Only 11% of investors felt that their investments in private equity, infrastructure or real estate failed to meet expectations. Moreover, over a third (36%) of investors in real estate felt their performance objectives were exceeded, the highest proportion of any asset class. 

“Institutional investors remain committed to alternative assets and, in most cases, far more investors expect to grow their allocations to these asset classes than intend to reduce them,” commented Preqin CEO Mark O’Hare.

“However, it is undoubtedly a challenging time for investors, with an increasingly congested market making it difficult to select the right investment manager or vehicle," he added. "Meanwhile, fund managers face a battle in standing out from the crowd and attracting fresh investor capital. 
Managers must ensure that they maintain open and effective communication during the fundraising process.” 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products.  

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