Despite a slowing global economy and geopolitical uncertainty, the alternative assets industry continues to grow. In fact, according to a report from financial data and information provider Preqin, investors are doubling down on alternatives in order to provide returns in difficult times.
“The position of the market cycle is still at the forefront of investors’ minds—even more so in 2020 as we see major stock indices record sizeable losses,” Nicole Lee, Preqin’s head of content, said in a statement. “But if anything, this concern is only increasing their appetite for alternative assets. … Choppy waters are ahead, and the industry is not immune to trouble, but for now investors are still seeking alternatives.”
Assets under management grew to more than $10 trillion last year as investors poured capital into alternatives. The survey by Preqin found that 71% of investors in each alternative asset class felt performance met or exceeded their expectations in 2019. And at least 77% of investors in each asset class said they will maintain or increase capital commitments in 2020 compared with 2019. And in the longer term, at least 81% said they will keep or raise their allocations.
Although high asset pricing is a concern for investors in most asset classes, the Preqin survey indicates that investors are still sticking with alternatives. “Given the historical evidence of returns through good times and bad, this strategy may well turn out to be justified,” the report said.
In private equity, 87% of respondents said their investments met or exceeded their return expectations in 2019, and the same percentage of investors in infrastructure said the sector’s returns met or exceeded expectations. Natural resources had the lowest percentage of investors saying the returns were at or above what they expected, but the category was still relatively high at 71%.
According to the findings of the survey, the average target allocation among institutional investors was 12.9% for hedge funds, 11% for private equity, 9% for real estate, 6% for private debt, 4.5% for infrastructure, and 3.5% for natural resources.
Environmental, social, and governance (ESG) concerns seem to have a low priority among the alternative investors, despite a large majority (79%) of those surveyed saying that ESG funds tend to perform as well as or better than non-ESG funds. Nearly a quarter (23%) said ESG funds typically out-perform non-ESG funds, and 56% said ESG funds tend to perform the same as non-ESG funds, with only 21% saying they underperformed non-ESG funds.
Nevertheless, 42% of those surveyed said they do not consider ESG principles during fund evaluation, with only 9% saying they frequently reject a fund because of an inadequate ESG policy.
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Tags: Alternative Assets, ESG, Hedge Fund, Infrastructure, Natural Resources, Nicole Lee, Preqin, Private Debt, Private Equity, Real Estate