Investor outlook for alternative asset classes broadly positive
The vast majority (93 per cent) of survey respondents said their private equity funds’ performance has either met or exceeded expectations in the last 12 months. Investors are also satisfied with private debt, real estate and infrastructure funds, but some other asset classes were cause of consternation. Almost half (46 per cent) of hedge fund investors said those assets didn’t meet expectations, while 37 per cent said the same of natural resources.
However, hedge funds should still see plenty of inflows going further, according to the survey. Although the asset class disappointed investors in 2018 after double-digit returns in 2017, many investors said they believe equity markets are peaking today so they’ll likely look to hedge funds as a potential source for outperformance in the future.
On the other hand, real estate had the gloomiest outlook heading into the second half of the year. Only 11 per cent of survey respondents said they believe the asset class will outperform over the coming 12 months, while 23 per cent said they expect it to do worse than the previous 12 months.
“Real estate has been a star performer in recent years, but there are signs that investors are concerned this strong performance may be about to weaken,” the report noted. “Distributions reached record levels in 2016, but dropped off in 2017, and the 2018 figure to September suggests the full-year figure will be even lower.”
The survey also found environmental, social and governance factors are solidifying their relevance within alternative asset classes. Nearly half of investors said they’ve turned down the opportunity to invest in a fund because it didn’t comply with their ESG policies. Among those surveyed, eight per cent of investors said they frequently turn down funds for these reasons, while 40 per cent said they do it occasionally.
By asset class, survey respondents were most likely to have an ESG policy in place for private equity investments (35 per cent), followed by real estate (28 per cent), infrastructure (27 per cent) and private debt (23 per cent).