Eighty per cent of global institutional investors were invested in alternative assets in 2017 and more than half (52 per cent) were invested in three or more alternative asset classes, according to new research by Preqin Ltd.
The asset classes with the highest engagement in 2017 were real estate (59 per cent) and private equity (58 per cent), while the most well perceived asset classes were private equity (63 per cent) and infrastructure (53 per cent). Both asset classes met investors’ performance expectations in 2017, according to the survey, with 95 per cent reporting that private equity did so and 93 per cent reporting the same for infrastructure.
Read: Top managers see global alternative assets rise to $5 trillion: survey
“Investors are becoming ever more involved in the alternative assets industry, and we’ve seen an increase in the percentage of those investing in three or more asset classes over the past few years,” said Christopher Elvin, head of private equity products at Preqin, in a news release. Citing benefits such as portfolio diversification, strong risk-adjusted returns and low correlation to other asset classes, Elvin noted investors are generally looking to increase their allocations to alternative assets year over year.
Looking ahead to the next 12 months, 48 per cent of investors said they expect natural resources will perform better, and 32 per cent said the same of hedge funds. Also in the coming year, 42 per cent of respondents said they’re looking to increase their allocations to private debt, while 39 per cent said they’re planning to do the same for infrastructure.
The majority of investors in all asset classes cited valuations as their key concern in 2018. Among private equity investors, 88 per cent identified it as a key issue. In addition, greater proportions of investors in all asset classes said they’re finding it more difficult to find attractive opportunities compared to 12 months ago. Notably, half of investors reported difficulty in finding private equity opportunities.
Read: Investors getting more creative with alternatives amid stiff competition
“The industry has generally sustained their confidence, and in most asset classes investor satisfaction remains high,” said Elvin. “However, the record influx of capital that the industry has seen in recent years has resulted in high asset pricing and fierce competition among fund managers. With so many vehicles now soliciting investment, investors report that they are finding it harder to identify attractive opportunities.
“At the same time, valuations concerns mean that significant minorities of investors are questioning whether the industry can sustain its strong past performance in the future. Nonetheless, overall sentiment remains high, and it seems that the industry is likely to see investor allocations grow over the coming months.”