The Alternative Investment Industry Will Grow Significantly

The author is private equity research firm Preqin

Despite demonstrating concerns surrounding recent regulatory changes, the vast majority of the US$5.5 trillion alternative asset investors do not anticipate making any changes to their alternative asset allocations based on new regulations.

In fact, over 80% of investors in each asset class expect to commit the same or more capital to their respective asset class in the next 12 months compared to the last 12 months.

This strong investor confidence in the industry is encouraging news for alternative asset fund managers looking to raise capital for their vehicles and for the sector as a whole.

These findings are based on extensive interviews with 450 investors across alternative assets. These investors manage a combined US$11.7 trillion in assets and have a total of over US$750 billion invested in alternatives.

The majority of both real estate (54%) and infrastructure (59%) investors are below their target allocations to the asset class, with 45% of private equity and 41% of hedge fund investors also under-allocated.

The finding demonstrates the potential for significant growth in the next 12 months and in the longer term.

Moreover, the majority of all investors across private equity, hedge funds, real estate and infrastructure feel that the performance of their investments has either met or exceeded expectations.

The proportion of investors that believe their private equity fund investments have exceeded their expectations has reached 18%, the highest level recorded. It is an increase from June 2012 when just 9% of investors had the same sentiment.

However, a notable 26% and 25% of hedge fund and real estate investors respectively feel their investments in these asset classes have fallen short of expectations.

Regulation is a key issue facing investors in alternative assets. About 41% of respondents strongly believe that regulations are not beneficial to their industry. Only 19% think regulations will benefit the industry.

(The article has been edited for clarity)