Seventy-nine percent of institutional investors worldwide invest in at least one alternative asset class, according to Preqin’s second-half investor outlook.
Preqin, the alternatives data provider, said that private equity, hedge funds and real estate were the most targeted alternative asset classes, with more than half of investors surveyed having an allocation to each of them in their portfolios.
More than a third of investors also allocated to infrastructure and private debt, the report said.
Investors in alternative assets commonly cited diversification, high returns, reliable income streams and inflation-hedging characteristics as chief benefits of holding these allocations.
“Institutional investors allocate to alternative assets to diversify their portfolios and to achieve a broad range of other objectives,” Preqin’s chief executive, Mark O’Hare, said in a statement.
“The high absolute returns generated by private equity, hedge funds’ ability to reduce volatility, the reliable income generated by private debt and the inflation-hedging characteristics of real assets are just some of the attractions for sophisticated investors.”
Preqin’s second-half investor outlook was based on a survey of 460 institutional investors in alternative assets, 43% of which were located in North America, 31% in Europe, 22% in Asia and 4% in the rest of the world.
The survey found that investment in nearly all alternative asset classes was likely to increase over the coming year. In particular, 42% of investors in private equity, 38% in private debt, 36% in infrastructure and 26% in real estate planned to invest more capital in the next 12 months than they had in the previous year.
In contrast, one-third of hedge fund investors said they would invest less capital over the coming year, while 19% said they would invest more.
Preqin’s research showed that most investors had a positive or neutral view of each asset class. For investors in private equity and real estate, this was more than 90%, and for hedge funds some 80%.
More than 60% of investors in real estate, infrastructure and private debt and 52% of hedge fund investors targeted returns of at least 8% annually.
In addition, 59% of private equity investors sought returns of at least 14%, and a significant 15% of these looked to annualized returns of 20% or more.
According to the survey, the majority of investors in all asset classes believed that their interests aligned with those of fund managers.
Eight-three percent of private debt investors and 80% of real estate investors expressed satisfaction, followed by 77% of those allocating to infrastructure, 70% to private equity and 51% to hedge funds.
In another finding, Preqin reported that 47% of hedge fund investors, 44% of private equity investors and 37% of real estate investors said that fund terms were changing in their favor.
At the same time, about two-thirds of private equity and real estate investors and more than half of hedge fund investors said they had occasionally been put off and decided not to invest because of fund terms and conditions.
— Check out Oil Explorers Tumble as Commodities Bloodbath Sinks Markets on ThinkAdvisor.