Preqin: 80% of Institutional Investors Bet on Alternatives

Investors seek to allocate more to private debt, infrastructure in coming year.

A survey by Preqin found institutional investors are upping the ante on investments to alternative assets.

According to Preqin’s alternative assets investors survey, 80% of institutional investors are currently allocating to alternative assets, with the majority engaged in real estate (59%) and private equity (58%). Of the four-fifths that invest in alternatives, 52% are invested in two or more classes within the space.

In 2017, the most well-perceived asset classes were private equity and infrastructure, with 63% of those surveyed feeling positive about private equity and 53% with the same notions toward infrastructure. In fact, nearly all investors also found the two classes to best meet performance expectations in 2017; with 95% enjoying private equity and 93% favoring infrastructure.

“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. Drawn by the benefits alternative assets investments offerportfolio diversification, strong risk-adjusted returns, and low correlation to other asset classesinvestors have generally looked to increase their allocations to the industry year-on-year,” Christopher Elvin, head of private equity products, said in a statement. “The industry has generally sustained their confidence, and in most asset classes investor satisfaction remains high.”

In addition to infrastructure, the highest number of investors are seeking to increase allocations to private debt for the coming year, with 42% planning to increase their private debt investments and 39% looking to add more infrastructure to their portfolios.

Over the next 12 months, 48% of investors are expecting better performance from natural resources, with 32% also expecting the same of hedge funds.

There are concerns within private equity; the majority of private capital investors worried valuations would be a key concern in 2018, with 88% of private equity investors pinpointing it as an issue. Preqin also reports half of investors reported increased difficulty in finding private equity opportunities compared to 12 months ago. Interestingly, Preqin’s survey found more investors across all asset classes are having trouble with finding attractive opportunities in all spaces than they had one year prior.

“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,” Elvin said. “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.”

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