Alternative Investors Target Health Care, Logistics, Shun Real Estate

The economic interruption and travel restrictions caused by the COVID-19 pandemic have led alternative asset investors to delay making fund commitments, and fund managers have faced challenges in fundraising, deal origination, and portfolio company operations, according to a survey conducted by financial data and information provider Preqin.

Preqin surveyed alternative asset fund managers and investors in April to gauge their views on the effects of COVID-19 on their business operations and the industry as a whole. The survey found that further disruption is likely unavoidable for the remainder of the year as 46% of the investors polled are concerned about the impact of the denominator effect on their portfolio, with 27% concerned about their liquidity to fund capital calls.

Despite the concerns for the rest of the year, the survey found that a more positive impact is expected over the longer term. Among those surveyed, 63% of investors say the pandemic will have zero impact on how much they will invest in alternatives, with 29% planning to invest more in alternatives over the long term. More than 60% of fund managers, meanwhile, say that COVID-19 has not affected the targeted returns of their funds in market, and 75% say that they will not adjust their investment strategy as a result of the pandemic.

Preqin also questioned investors about which sectors they are targeting for investments during the crisis and which ones they are avoiding. The survey indicated that investors are looking closely at investing in health care-focused private equity during the rest of the year, as 36% of the investors surveyed plan to target the sector in 2020 as a result of the pandemic. The logistics sector is another attractive target for investors with 15% saying they will invest in the sector in 2020 as a result of the crisis as it should benefit from the boost in online shopping caused by lockdown measures.

Meanwhile, 34% of investors don’t want to touch retail-focused real estate investments as retail markets worldwide have been devastated by government lockdown measures. And, for the industry as a whole, some investors said they believed people won’t have money to invest in real estate while health care sectors are expected to be booming. And although 47% of investors said they were not avoiding any particular regions or sectors because of the pandemic, Preqin said this highlights the extent to which retail real estate markets may struggle to recover once government restrictions are lifted.

Other key survey findings include:

58% of investors are decreasing their planned number of new commitments in 2020 as a result of COVID-19, and 59% are decreasing the planned size.
55% of managers with funds open to investment have slowed their fundraising process, while 1% have abandoned it entirely.
69% of fund managers say COVID-19 has negatively impacted fundraising from potential investors.
34% say they believe their business operations will return to normal in three to six months, with another 34% expecting normalcy in six to 12 months.
59% expect the returns of their alternatives portfolios to face a negative impact from COVID-19 in the longer term.
62% of fund managers with vehicles open to investment say they are not adjusting their targeted returns, and 75% are not planning to change their investment strategy.