PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS H2 2018 · ASIA-PACIFIC 21% ASSET MANAGER FAMILY OFFICE...
Transcript of PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS H2 2018 · ASIA-PACIFIC 21% ASSET MANAGER FAMILY OFFICE...
1. ALTERNATIVE ASSETS OVERVIEW
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PREQININVESTOR UPDATE:ALTERNATIVE ASSETSH2 2018Private Equity ■ Venture Capital ■ Hedge Funds ■ Real Estate Infrastructure ■ Private Debt ■ Natural Resources
© Preqin Ltd. 2018 / www.preqin.com1
PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS, H2 2018
FOREWORD
With nearly four out of every five institutional investors globally allocating capital to alternative assets, these products have emerged as a mainstream investment option over the past decade. Although central banks have started to adapt interest rate policies,
interest rates in many economies remain at very low levels; investors have diversified in their quest for yield as well as in a bid to reduce long-term risks within their portfolios.
In June 2018, we surveyed 530 institutional investors to discover more about their views on alternative assets – private equity, real estate, infrastructure, natural resources, private debt and hedge funds.
In this Investor Update, we dive into these results, as well as data taken from our award-winning platform, to determine what investors are looking for from alternative assets and how these products are meeting their needs. We also provide an outlook on their future plans for alternative assets going forwards.
Some key themes emerged from our conversations with investors:
■ Institutional portfolios of alternative assets are growing more diverse:In June 2015, 39% of the institutions tracked by Preqin allocated capital to three or more different alternative assets; today, that figure stands at 50%. Diversification is the primary reason why investors have stepped into alternative assets, above high absolute returns.
■ Investors’ needs from alternative assets are changing:Asset pricing and high valuations are a concern across many private capital asset classes, with many investors believing equity markets have peaked. Investors, which have often seen performance above expectations in recent years, believe that the opportunity for outperformance may be constrained going forwards. Across private equity, real estate and infrastructure, investors’ return expectations have fallen significantly since 2015.
■ Interest in emerging markets and Asia is growing:Although North America and Europe continue to dominate investor thinking for their alternative assets portfolios, Asia and other emerging markets feature highly on the agenda across alternative asset classes. With concerns around high pricing in developed markets, investors are looking elsewhere for new opportunities.
We hope you find this report useful and welcome any feedback you may have. For more information, please visit www.preqin.com or contact [email protected].
RESPONDENTS BY INVESTOR LOCATION RESPONDENTS BY INVESTOR TYPE
NORTH AMERICA
EUROPE
54%
29%
15%
REST OF WORLD
3%
ASIA-PACIFIC
ASSET MANAGER21%
FAMILY OFFICE
PRIVATE SECTOR PENSION FUND
PUBLIC PENSION FUND
INSURANCE COMPANYBANKFOUNDATIONENDOWMENT PLANOTHER
17%
15%
11%
9%
6%5%3%
12%
SECTION ONE:ALTERNATIVE ASSETS
OVERVIEW
© Preqin Ltd. 2018 / www.preqin.com3
PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS, H2 2018
Private Equity Hedge Funds Real Estate Infrastructure Private Debt Natural Resources
PARTICIPATION IN ALTERNATIVE ASSETS
INSTITUTIONAL INVESTORS BY NUMBER OF ALTERNATIVE ASSET CLASSES INVESTED IN
None One Two Three Four Five Six
21% 16% 13% 15% 14% 11% 10%Source: Preqin
INSTITUTIONAL INVESTORS ALLOCATING TO EACH ALTERNATIVE ASSET CLASS
57% 45% 59% 32% 36% 37%
Source: Preqin
INVESTORS’ AVERAGE CURRENT ALLOCATION TO EACH ASSET CLASS (AS A % OF TOTAL ASSETS), 2015 vs. 2018
16%
14%
12%
10%
8%
6%
4%
2%
0%
Private Equity Hedge Funds Real Estate Infrastructure Private Debt Natural Resources
9.1% 9.1%
14.4% 14.5%
8.6% 8.8%
4.1% 4.2% 4.3%
5.1%
2.9%3.8%
June 2015June 2018
Source: Preqin Investor Interviews, June 2015 - June 2018
1. ALTERNATIVE ASSETS OVERVIEW
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WHAT ARE INVESTORS LOOKING FOR?
Private Equity Hedge Funds Real Estate Infrastructure Private Debt Natural Resources
Diversification Diversification Diversification Diversification Diversification DiversificationHigh Absolute
ReturnsLow Correlation to
Other Asset ClassesReliable Income
StreamReliable Income
StreamReliable Income
Stream Inflation Hedge
High-Risk Adjusted Returns
High-Risk Adjusted Returns Inflation Hedge Inflation Hedge High-Risk Adjusted
ReturnsLow Correlation to
Other Asset Classes
INSTITUTIONAL INVESTORS’ MAIN REASONS FOR INVESTING IN ALTERNATIVE ASSETS
Source: Preqin Investor Interviews, June 2018
AVERAGE ANNUAL RETURNS SOUGHT BY INVESTORS FOR EACH ASSET CLASS, 2015 vs. 2018
16%
14%
12%
10%
8%
6%
4%
2%
0%
Private Equity Hedge Funds Real Estate Infrastructure Private Debt Natural Resources
14.1%
11.6%
7.0% 7.0%
9.2%
7.9%
9.5%
7.7%
9.6% 9.8%
7.7%
N/A
INVESTOR VIEWS ON WHERE WE ARE IN THE EQUITY CYCLE
Trough Recovery/Expansion Phase
Peak Recession Phase
Unsure2%
56%
4%
12%
Source: Preqin Investor Interviews, June 2015 - June 2018
Source: Preqin Investor Interviews, June 2018
27%
June 2015June 2018
© Preqin Ltd. 2018 / www.preqin.com5
PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS, H2 2018
33%
56% 57%
15% 17%
66%80% 78%
18%12% 13%
60%73%
57%
29%21%
27%
53%70% 75%
36%
25% 16%
15%
37%50%
16%
ARE ALTERNATIVES DELIVERING?
Private Equity
Hedge Funds
Real Estate Infrastructure Private
DebtNatural
Resources
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Exceeded Expectations
Met Expectations
Fallen Short of Expectations
INSTITUTIONAL INVESTOR VIEWS ON PORTFOLIO PERFORMANCE OVER THE PAST 12 MONTHS BY ASSET CLASS
Private Equity Hedge Funds Real Estate
Infrastructure Private Debt Natural Resources
PROPORTION OF INVESTORS SATISFIED WITH PORTFOLIO PERFORMANCE OVER THE PAST 12 MONTHS BY ASSET CLASS, 2016 - 2018
Jun-16
100%
80%
60%
40%
20%
0%Jun-17 Jun-18
10%
34%
9% 16% 9%26%
71%
50%
75% 57% 78%57%
19% 16% 16%27%
13% 17%
66% 67% 71%
23% 22% 19%
Jun-16 Jun-17 Jun-18
6%
8%
Jun-16 Jun-17 Jun-18
Jun-16 Jun-17 Jun-18 Jun-16 Jun-17 Jun-18 Jun-16 Jun-17 Jun-18
2%
Met Expectations Exceeded Expectations
Source: Preqin Investor Interviews, June 2018
Source: Preqin Investor Interviews, June 2016 - 2018
100%
80%
60%
40%
20%
0%
100%
80%
60%
40%
20%
0%
100%
80%
60%
40%
20%
0%
100%
80%
60%
40%
20%
0%
100%
80%
60%
40%
20%
0%
1. ALTERNATIVE ASSETS OVERVIEW
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WHAT ARE INVESTORS PLANNING?
INSTITUTIONAL INVESTORS’ PLANS FOR THE COMING YEAR
Invest Less Capital than in Past 12 Months ▼ Invest More Capital than in Past 12 Months ▲
Private Equity
Hedge Funds
Real Estate
Infrastructure
Private Debt
Natural Resources
Source: Preqin Investor Interviews, June 2018
INSTITUTIONAL INVESTORS’ PLANS FOR THE COMING YEAR, 2016 - 2018
14%19%
17%8%
14%13%
43%
29%16%
30%
31%
30%
Private Equity Hedge Funds Real Estate
Infrastructure Private Debt Natural Resources
Jun-16 Jun-17 Jun-18
43%35%
29%
14%19%
14%
Jun-16 Jun-17 Jun-18
18% 20% 16%
39%49%
19%
Jun-16 Jun-17 Jun-18
31% 26% 30%
24% 28%17%
Jun-16 Jun-17 Jun-18
30%39%
20%
13%7%
28%
Jun-16 Jun-17 Jun-18
50% 46%
31%
14%19%
11%
Jun-16 Jun-17 Jun-18
53%44% 43%
8%15%14%
Invest More Capital than in Past 12 MonthsInvest Less Capital than in Past 12 Months
Source: Preqin Investor Interviews, June 2016 - June 2018
SECTION TWO:ASSET CLASS BREAKDOWNS
2. ASSET CLASS BREAKDOWNS
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PRIVATE EQUITY
Eighty-six percent of surveyed investors plan to maintain or increase their
investments in private equity in the coming year. Over three-quarters (77%) of respondents intend to commit capital to a private equity fund in the second half of this year, while a further 16% expect to make a commitment in 2019 (Fig. 1).
Small to mid-market buyout funds continue to present the best opportunities, according to the largest proportion (44%) of respondents (Fig. 2). While the deal market is competitive, there are more businesses in the lower middle market resulting in more choice. The proportion (25%) of investors targeting venture capital investments has remained at a similar level to previous years, while the proportion of respondents that feel growth funds are presenting the best opportunities has fallen from 30% in 2017 to 21% in 2018.
North America was cited by 55% of surveyed investors as presenting the most favourable investment opportunities at present, followed by Europe (35%, Fig. 3). A notable proportion of investors plan to
target Asia (23%) and emerging markets (16%). With high valuations still seen as the key issue facing the industry in the next year, investors may target regions outside North America and Europe in search of relative value.
1%
1%
2%
16%
23%
35%
55%
0% 20% 40% 60%
Middle East
Australasia
Latin America
Emerging Markets
Asia
Europe
North America
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 3: Regions that Investors View as Presenting the Best Opportunities over the Next 12 Months
7%
11%
13%
14%
21%
25%
44%
0% 10% 20% 30% 40% 50%
Other
Fund of Funds
Large toMega Buyout
Secondaries
Growth
Venture Capital
Small to Mid-Market Buyout
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 2: Fund Types that Investors View as Presenting the Best Opportunities over the Next 12 Months
77%
14%
2%7%
H2 2018
H1 2019
H2 2019
2020 or Later
Source: Preqin Investor Interviews, June 2018
Fig. 1: Timeframe for Investors’ Next Intended Commitment to a Private Equity Fund
© Preqin Ltd. 2018 / www.preqin.com9
PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS, H2 2018
HEDGE FUNDS
Hedge fund performance has varied so far in 2018, and approximately
a third (34%) of surveyed investors reported that hedge funds had not met expectations over the past 12 months (see page 5). However, they are upbeat about the prospects for the asset class going forwards: 32% of respondents believe their hedge fund portfolio will perform better in the next 12 months compared to the previous year, and the majority (51%) expect returns to be about the same.
Over two-thirds (69%) of investors plan to make their next hedge fund investment in H2 2018, while 16% will look to invest in 2019; the remaining 14% do not expect to invest until at least 2020 (Fig. 4). Fifty-nine percent of respondents believe that equity markets have peaked, resulting in a larger proportion of investors looking to position their portfolios defensively than aggressively (33% vs. 6% respectively). The largest proportion (28%) of investors plan to increase their exposure to systematic CTAs over the next 12 months, which can provide returns uncorrelated to other hedge fund strategies and equity markets (Fig. 5). Similarly, nearly 3x as
many investors plan to increase their exposure to macro strategies than reduce it. Institutions may look to add these strategies to their portfolios for downside protection in the event of an equity market correction.
The majority (63%) of investors view North America as presenting the best opportunities in the year ahead, reflective
of the size of the hedge fund industry in the region (Fig. 6). However, notable levels of investors are looking towards Asia (28%) and emerging markets (22%) following strong returns in 2017, when funds investing in each region produced, on average, returns topping 15%.
6%
7%
7%
22%
25%
28%
63%
0% 10% 20% 30% 40% 50% 60% 70%
Middle East
Latin America
Australasia
Emerging Markets
Europe
Asia
North America
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 6: Regions that Investors View as Presenting the Best Opportunities over the Next 12 Months
12%
13%
14%
18%
20%
21%
23%
25%
26%
28%
81%
61%
77%
68%
66%
75%
68%
60%
66%
53%
7%
26%
9%
14%
4%
9%
15%
9%
19%
0% 20% 40% 60% 80% 100%
Relative Value Strategies
Fund of Hedge Funds
Event Driven Strategies
Discretionary CTA
Equity Strategies
Multi-Strategy
Emerging Markets
Credit Strategies
Macro Strategies
Systematic CTA
Increase Exposure Maintain Exposure Decrease ExposureSource: Preqin Investor Interviews, June 2018
Proportion of Respondents
Fig. 5: Investors’ Hedge Fund Allocation Plans for the Next 12 Months by Top-Level Strategy
69%
12%
4%
14%
H2 2018
H1 2019
H2 2019
2020 or Later
Source: Preqin Investor Interviews, June 2018
Fig. 4: Timeframe for Investors’ Next Intended Hedge Fund Investment
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REAL ESTATE
Nearly two-thirds of surveyed real estate investors plan to make their
next fund investment in H2 2018 (Fig. 7) – a potential boon for the industry which has experienced slower fundraising totals across the second quarter of the year. Fifteen percent of the investor population have indicated they will not invest until at least 2020, with concerns over cycle risk the likely driver of the delay in activity.
Moves down the risk/return spectrum are evident in Fig. 8: in recent years, opportunistic vehicles have captured large amounts of capital, yet only a fifth of surveyed investors feel that these high-risk funds present the best opportunities over the coming year. We are seeing firms that typically seek higher-risk vehicles opt for value-added funds instead; as such, they have captured the largest proportion of fundraising in 2018 so far and, based on the results of this survey, are likely to continue to do so over H2 2018. Further evidence of the de-risking of portfolios is presented in the two strategies identified as currently offering the next best opportunities: core and core-plus.
The developed markets of North America and Europe remain the best opportunities for real estate investment, as stated by the greatest proportions of surveyed institutions (Fig. 9). However, when compared to the H1 2018 survey, these proportions have fallen by 13 and nine percentage points respectively, while for emerging markets the proportion has risen
from 6% to 16%. This may be indicative of investors looking beyond developed regions in search of attractive assets at relative value.
2%
3%
5%
16%
19%
40%
50%
0% 10% 20% 30% 40% 50% 60%
Middle East
Latin America
Australasia
Emerging Markets
Asia
Europe
North America
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 9: Regions that Investors View as Presenting the Best Opportunities over the Next 12 Months
2%
4%
4%
6%
20%
22%
30%
38%
0% 10% 20% 30% 40%
Distressed
Secondaries
Fund of Funds
Debt
Opportunistic
Core-Plus
Core
Value Added
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 8: Strategies that Investors View as Presenting the Best Opportunities over the Next 12 Months
63%
18%
4%
15%
H2 2018
H1 2019
H2 2019
2020 or Later
Source: Preqin Investor Interviews, June 2018
Fig. 7: Timeframe for Investors’ Next Intended Commitment to a Real Estate Fund
2. ASSET CLASS BREAKDOWNS
© Preqin Ltd. 2018 / www.preqin.com11
PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS, H2 2018
INFRASTRUCTURE
Sixty-seven percent of investors active in infrastructure are planning to make
their next commitment to the asset class in the second half of 2018 (Fig. 10), while 22% of investors plan to invest in infrastructure in 2019. A further 11% have longer-term views for their investments in the asset class, aiming to make a commitment in 2020 or later.
Thirty-seven percent of investors believe that core-plus funds will present the best opportunities in the market over the next 12 months (Fig. 11), a sizeable increase on the 20% of respondents favouring the strategy at the end of 2017. As the market for core funds becomes increasingly crowded, this could explain the migration of investors towards riskier assets – there has been a reduction in the number of investors viewing core strategies as offering favourable opportunities from 35% to 29%.
There has been little change in investor sentiment with respect to the most attractive regions since the end of 2017:
unsurprisingly, North America is viewed by the largest proportion (43%) of investors as presenting the best opportunities over the next 12 months (Fig. 12). Europe is close behind with 36% of respondents, followed by emerging markets (28%) and Asia (22%).
4%
5%
10%
22%
28%
36%
43%
0% 20% 40% 60%
Middle East
Australasia
Latin America
Asia
Emerging Markets
Europe
North America
Source: Preqin Investor Interviews, June 2018
Fig. 12: Regions that Investors View as Presenting the Best Opportunities over the Next 12 Months
7%
8%
9%
18%
29%
28%
37%
0% 10% 20% 30% 40%
Secondaries
Fund of Funds
Debt
Opportunistic
Core
Value Added
Core-Plus
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 11: Strategies that Investors View as Presenting the Best Opportunities over the Next 12 Months
67%
18%
4%
11%
H2 2018
H1 2019
H2 2019
2020 or later
Source: Preqin Investor Interviews, June 2018
Fig. 10: Timeframe for Investors’ Next Intended Commitment to an Infrastructure Fund
Proportion of Respondents
12
PRIVATE DEBT
Over three quarters (76%) of investors active in private debt intend to
commit fresh capital to the asset class in the second half of 2018 (Fig. 13), indicating that LPs perceive an attractive risk/return proposition in the current uncertain economic environment. Nine percent of investors are looking further into the horizon, with plans to make commitments in 2020 or beyond.
As was the case a year ago, investors believe direct lending presents the best opportunities at the current time, as cited by 31% of respondents (Fig. 14). At this stage last year, 40% of investors felt mezzanine strategies presented the best opportunities; however, the proportion (20%) of respondents that currently believe this to be the case has halved, with many investors seemingly looking to take less risk and allocate to assets further up the capital structure. Twenty-one percent and 19% of investors look favourably upon distressed debt and special situations funds respectively.
Importantly, Europe (47%) has overtaken North America (43%) as the region investors are viewing as presenting the best opportunities (Fig. 15). Europe has attracted significant attention in private debt in recent years, as the market matures and investors look to diversify their private debt exposure. Outside the
more developed private debt markets, there is muted interest from investors, with only 16% of investors naming each of Asia and emerging markets as presenting the best opportunities.
1%
1%
2%
16%
16%
43%
47%
0% 10% 20% 30% 40% 50%
Latin America
Middle East
Australasia
Emerging Markets
Asia
North America
Europe
Source: Preqin Investor Interviews, June 2018
Fig. 15: Regions that Investors View as Presenting the Best Opportunities over the Next 12 Months
29%
3%
5%
19%
20%
21%
31%
0% 10% 20% 30% 40%
Other
Venture Debt
Fund of Funds
Special Situations
Mezzanine
Distressed Debt
Direct Lending
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 14: Fund Types that Investors View as Presenting the Best Opportunities over the Next 12 Months
76%
14%
1%9%
H2 2018
H1 2019
H2 2019
2020 or later
Source: Preqin Investor Interviews, June 2018
Fig. 13: Timeframe for Investors’ Next Intended Commitment to a Private Debt Fund
Proportion of Respondents
2. ASSET CLASS BREAKDOWNS
© Preqin Ltd. 2018 / www.preqin.com13
PREQIN INVESTOR UPDATE: ALTERNATIVE ASSETS, H2 2018
NATURAL RESOURCES
The majority (62%) of investors in natural resources plan to make their
next commitment to the asset class in the second half of 2018, while 18% intend to invest in the first half of 2019, suggesting an active year ahead for the industry (Fig. 16). A further 17% of respondents have longer-term views to invest in 2020 or beyond.
Foundations and public pension funds represent equal proportions (14%) of investors that invest in natural resources funds (Fig. 17), with private sector pension funds (13%) not far behind. Fund of funds managers make up just 3% of investors looking to make investments in the asset class.
North America was cited by 47% of respondents as presenting the best opportunities in the next 12 months, followed by emerging markets (26%) and Asia (21%, Fig. 18). The proportion of investors that believe Europe offers the best opportunities over the next
12 months, however, has fallen from 35% a year ago to 19%. This may reflect uncertainty surrounding the UK’s impending exit from the EU, including whether deal flow in other EU countries will be affected as a result.
4%
6%
8%
19%
21%
26%
47%
0% 10% 20% 30% 40% 50%
Middle East
Latin America
Australasia
Europe
Asia
Emerging Markets
North America
Source: Preqin Investor Interviews, June 2018Proportion of Respondents
Fig. 18: Regions that Investors View as Presenting the Best Opportunities over the Next 12 Months
14%
14%
13%
10%7%
6%
6%
6%
6%
5%
4%3%
7%
Foundation
Public Pension Fund
Private Sector Pension Fund
Endowment Plan
Family Office
Wealth Manager
Bank/Investment Bank
Insurance Company
Investment Company/Trust
Asset Manager
Corporate Investor
Fund of Funds Manager
Other
Source: Preqin Investor Interviews, June 2018
Fig. 17: Investors in Natural Resources by Type
62%18%
3%
17%
H2 2018
H1 2019
H2 2019
2020 or later
Source: Preqin Investor Interviews, June 2018
Fig. 16: Timeframe for Investors’ Next Intended Commitment to a Natural Resources Fund
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PREQIN INVESTOR UPDATE:ALTERNATIVE ASSETS
H2 2018
PREQINMore than 60,000 alternative assets professionals rely on our global data, tools, insights and intelligence to achieve their objectives:
■ Preqin currently tracks 14,578 investors on its online platform, 10,629 of which are actively ■ investing■ 2,342 investor profiles have been added to in 2018 to date■ There are 94 research analysts currently working on investor products at Preqin, with a ■ total of 21 languages spoken across the company■ In 2018 so far, there have been 22,289 full updates completed on investor profiles, with ■ 11,746 updates conducted through direct contact with investment firms■ Our dedicated research analysts have conduced 15,529 direct communications with investors ■ in 2018 so far■ There are currently 1,733 investors actively investing in alternative assets, and a further 743 ■ are considering investing