Assets under management by private equity, hedge fund, private debt, real estate and infrastructure fund managers bulged to $6.9 trillion in 2014, up from $6.2 trillion a year earlier, according to alternatives data provider Preqin.
Preqin reported Wednesday that hedge funds accounted for more than half of the asset growth across alternatives, despite underwhelming performance, as investors continued to deploy capital in funds that offered attractive opportunities.
Improving valuations mainly drove asset growth across other the other asset classes, Preqin said.
“The recent news of CalPERS cutting hedge funds and reducing the number of private equity partnerships within their portfolio does not reflect the wider sentiment in the industry,” Preqin’s chief executive Mark O’Hare said in a statement.
“Across all asset classes, a much larger proportion of investors plan to increase their exposure rather than cut back their allocations to alternatives,” O’Hare said, citing the firm’s conversations with investors.
Following are key findings from Preqin’s report.
Hedge fund assets under management increased to some $3 trillion in 2014, up from $2.7 trillion at the end of 2013.
This was the biggest growth in assets among alternative investments last year, and came despite lackluster performance.
Hedge funds posted returns of 3.8% in 2014, compared with average returns of 12.3% in 2013. This was their lowest average since 2011.
Preqin predicted that investors would scrutinize the value of investing in hedge funds throughout 2015. Key issues facing the industry over the coming year will be performance and fees.
Total private equity assets under management stood at $3.8 trillion as of June 2014, up from $3.5 trillion as of June 2013. Preqin included in this total private real estate and infrastructure funds.
In the first half of 2014, the latest data available, a total of $444 billion was distributed to investors. Preqin said this indicated that 2014’s total would likely surpass the $561 billion of capital returned to investors throughout all of 2013.
In a Preqin survey, 54% of private equity fund managers said competition for deals had increased compared with a year earlier.
The private real estate sector had $742 billion under management as of June 2014, up from $657 billion as of June 2013, driven predominantly by improving valuations of unrealized assets.
Preqin found that higher asset valuations were affecting new investment activity.
Sixty-six percent of fund managers reported that they were finding it harder to identify attractive investment opportunities at suitable prices in the current market, compared with 12 months earlier.
Still, performance of the real estate asset class has been strong, Preqin reported. Over the past three years, private real estate funds have recorded annualized returns of 16.7%.
Infrastructure assets reached a record high of $296 billion as of June 2014, up $52 billion from a year earlier.
Preqin said investors were seeking exposure to infrastructure through a variety of methods. In a survey, 56% expressed interest in making direct investments into infrastructure assets over the coming year.
The average size of infrastructure funds closed in 2014 reached $1 billion, compared with $688 million in 2013.
— Check out Hedge Funds Meet Expectations Despite ‘Underwhelming’ Returns: Preqin on ThinkAdvisor.