Eight in 10 large investors will renew their focus on alternative assets — less liquid investments such as private equity and absolute return funds — as stocks and bond returns increasingly fall short of expectations.
Many big investment first project inflation adjusted returns for stocks in the low single digits or even negative in the coming decade. That fear has pushed many such investors into new areas of the market in search of a more stable long-term return.
The finding is according to a survey of 550 institutional investors by alternative asset research firm Preqin.
More than half of them will invest in at least three alternative asset classes or more.
The survey also showed that institutional investors are more satisfied with private equity and real estate segments.
On the bond front, a majority look to make bigger allocations to private debt — rather than public debt such as government bonds — look to invest directly into infrastructure projects.
Among the key findings:
- Four in five institutional investors are presently investing in alternative assets, and 52 percent are investing in at least three asset classes.
- Sixty-three percent of investors perceive PE (price over earnings) as the most attractive class, while 53 percent show positivity towards infrastructure.
- Ninety-five percent of the investors felt PE met or surpassed expectations in 2017, while 93 percent said the same about infrastructure.
- In terms of future outlook, 48 percent of the investors believe natural resources will outperform, while 32 percent expect hedge funds to do the same.
- In 2018, 42 percent of the investors are seeking to invest greater amounts of capital in private debt, while 39 percent will do the same in the area of infrastructure.
- Out of those who are invested in PE, 88 percent identified valuations as a vital concern in 2018.
- A growing number of investors across alternative asset classes are finding it more difficult to find lucrative opportunities in 2018 than they did 12 months back.
- Fifty percent of the investors say it is getting harder in PE to find good investing opportunities.
According to Christopher Elvin, head of private equity at Preqin, institutional investors are getting involved in the alternative assets segment more than ever before.
Preqin has noted a jump in the percentage of those who are investing in at least three asset classes over the last few years. He says these investors are attracted by these three key advantages that investments in alternative assets offer:
- Robust risk-adjusted returns
- Portfolio diversification
- Minimal correlation with other asset classes
Institutional investors have been looking to increase their allocations in alternatives even more so than in the previous year, he says.
Investor satisfaction in most alternative asset classes continues to remain high, and the industry has largely sustained the confidence of these investors.
Nevertheless, record inflows of capital into alternative assets in recent years have led to higher pricing and increased competition among investment managers.
As a result, Elvin says, investors report that it is getting more challenging for them to spot attractive investing opportunities.