While institutional investors reported that they were generally satisfied with their portfolio performances, and were seeking to maintain or increase allocations over the next year, valuations were among their highest concerns, according to a survey from Preqin.
Of the 540 institutional investors surveyed, 78% currently invested in alternate assets, with 47% investing in three or more classes. Private equity and real estate were the most sought-after classes, with 56% of investors involved in each,.
Private equity was also the most well-perceived asset class, with 58% of investors reporting positivity towards the class. The second-most well-perceived class was private debt, at 57%.
While a greater proportion of the surveyed plan to increase their long-term allocations across most asset classes, 44% of hedge fund investors plan to reduce their longer-term allocation (twice as many as those planning to increase it). Long-term reductions are also being planned for 13% of natural resources investors, with only 17% looking to allocate more.
Key issues in the coming year among the largest proportions of investors across all private capital assets are high asset pricing, while hedge fund investors were mostly concerned with performance (69%) and fees (59%). Valuations were cited as a key issue in the coming month from 86% of private equity investors and 72% of real estate investors.
According to the survey, a “greater proportion of investors” are finding more difficulty in sourcing attractive investment opportunities.
“Currently, investors face the challenge of choosing between more than 17,100 alternative assets funds which are open to investment, and fund managers face unprecedented levels of competition. These factors, as well as strong performance from the majority of alternative asset classes, and record levels of dry powder, have contributed to investors’ increased concern over high pricing in the industry,” Oliver Senchal, head of real estate products, said in a statement.
“As investors flock to alternatives, they are increasingly opting for bigger, more-established firms. This places pressure on less-established fund managers, who are facing greater competition for the remainder of investor commitments and will have to find ways to stand out from one another in order to attract capital. However, strong long-term performance by alternatives have continued to entice investors to private capital, and we expect to see further expansion of the alternatives industry.”