European Alternatives Industry Hits €1.62 Trillion in Assets

Hedge funds remain largest part of alts, but private equity is growing faster.

Despite the European macroeconomic picture being “muted” for the past two years, last year saw record activity in most alternative asset classes.  European alternative asset fund managers held €1.62 trillion ($1.82 trillion) in assets as of June 2018, up €300 billion in three years, according to a report from financial data and information provider Preqin.

Hedge funds remain the largest part of the European alternatives market at €608 billion, according to the report, but assets under management in the industry have declined in the past 12 months, putting private equity’s €559 billion in assets under management in position to surpass it as the largest asset class in the region.

The report also found that 2018 was a record year for private capital deal making, with transactions exceeding €374 billion. Additionally, both the number and value of deals within most private capital asset classes either reached record levels in 2018 or closely matched those of the prior year, said the report.

“It is worth noting that this growth has come despite the political and economic uncertainties—most notably Brexit—that bedevil the continent,” Mark O’Hare, chief executive of Preqin, said in the forward to the report. “These uncertainties clearly do not help the industry; but it appears to be once again demonstrating its ability to cope with uncertainty and find attractive investment opportunities whatever the external market conditions.”

The report said that after seven years of uninterrupted growth, the economic mood in Europe “has noticeably cooled” and “is most definitely downbeat,” with most economic indicators in recent quarters showing declining prospects for the coming year.

“It is therefore important to remind ourselves that economic growth is not the same thing as activity and opportunities in alternative assets,” said O’Hare. “Europe’s alternative assets industry is in rude health; moreover, it is extremely diverse, both as regards the different asset classes within alternative assets, and across countries and regions within Europe.”

Preqin’s data shows that although hedge funds are the largest part of the European alternative assets market, the private equity market is growing at a faster clip. According to the report, the European private equity market has grown by 25% since December 2015, compared with growth of only 6% for the hedge fund industry over the same period. It also found that the number of funds closed and the amount of capital secured by funds targeting investment in Europe increased annually from 2010 to reach record levels in 2017.

Among European countries, the report found the UK to be the largest single hub for alternative assets with more than 2,000 fund managers; however, over two-thirds of the industry’s fund managers are based elsewhere. Preqin said individual countries have their own particular expertise and strength in specific areas such as private equity and real assets in France; private equity in Germany; hedge funds in Switzerland; and private equity and hedge funds in Sweden.

“All the evidence points to Europe maintaining a dynamic and successful alternative assets industry,” said O’Hare, “fully equipped and ready to participate in the near-doubling of global alternatives AUM that Preqin forecasts for the next four years.”

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