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High Alternative Asset Deal Pricing Worries Investors

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Institutional investors in alternative assets profess to be generally satisfied with the performance of their portfolios, according to a recent survey by alternatives data provider Preqin.

However, investors reported high pricing across all closed-end private capital asset classes, and see this as a major challenge facing the industry.

Preqin polled 540 institutional investors in June.

It found that 78% of respondents currently invested in alternative assets, and 47% invested in three or more asset classes. Private equity and real estate were the most-targeted asset classes, with 56% of investors involved in each.

In addition, private equity and private debt enjoyed the best perception among investors: 58% were positive toward private equity, and 57% were positive toward private debt.

Hedge funds, in contrast, were least well looked upon. Indeed, 44% of hedge fund investors said they planned to reduce their longer term allocation, double the proportion that planned to increase it.

Similarly, 13% of natural resources investors intended to commit less in the long term, while 17% said they would allocate more.

The largest proportion of investors across all private capital asset classes saw high asset pricing as a key challenge facing the industry in the coming year. In particular, 86% of private equity investors and 72% of real estate investors cited valuations as a key concern in the months ahead.

Sixty-nine percent of hedge fund investors cited performance and 56% fees as their primary concerns.

Across all asset classes, more investors said they were finding it harder to source attractive investment opportunities than were finding it easier.

“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,” Preqin’s head of real estate products, Oliver Senchal, said in a statement.

“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.”

Senchal noted that as investors flock to alternatives, more and more are choosing bigger, better-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,” he said.

“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.”

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