Investors Plan Bigger Alternative Allocations in ‘Choppy’ Markets

Asset allocators have high expectations for private equity returns.

Waldo Swiegers/Bloomberg

Waldo Swiegers/Bloomberg

Amid a volatile stock market, investors are planning bigger allocations to alternative assets.

At least 77 percent of investors expect to maintain or increase their capital commitments across alternatives this year, according to a Preqin report. The percentage rises to 81 percent over the longer term, with private equity benefiting the most from planned increases to alternative investments.

“Choppy waters are ahead, and the industry is not immune to trouble, but for now investors are still seeking alternatives,” Preqin content head Nicole Lee said in a statement Thursday. “If anything, this concern is only increasing their appetite for alternative assets.”

Investors like the gains they’ve been getting from private equity and continue to have high expectations from the asset class, according to Preqin. The industry’s funds from vintages 2007 to 2016 have produced a median net return of 14.9 percent, the largest gains in private capital, the firm said in the report.

Alternative assets under management have swelled to more than $10 trillion as “yield-hungry investors” have poured capital into the industry, according to the report. Eighty-six percent of investors surveyed by Preqin in November said they would keep or increase allocations to private equity over the next 12 months. Over the longer term, that portion rises to 95 percent, with slightly more than half of investors planning bigger allocations.


“Amid a slowing global economy and geopolitical uncertainty, the alternative assets industry has continued to grow,” Preqin said. “Looking at returns across most asset classes, it’s no surprise that investors are largely satisfied with the performance of their alternatives portfolios.”

Among private capital funds from vintages 2007 to 2016, real estate and infrastructure have also produced double-digit returns. Real estate had 12.4 percent median net gains, exceeding the 10.6 percent return produced from infrastructure assets, according to the report.

While average returns from private debt have been among the lowest in private capital, Preqin found investors had the highest level of satisfaction with the asset class’s performance. Forty-four percent of investors plan to increase their allocations to private debt this year.

[II Deep Dive: Finding Safe Havens in Private Markets]

Anton Pil, the head of JPMorgan Chase & Co. alternative assets business, said at March 4 media briefing that demand for infrastructure should rise as investors will need sources of income beyond low-yielding fixed-income securities. The yield on the 10-Year Treasury note has dropped below 1 percent as investors flock to safe-haven assets in the stock market turmoil.

Meanwhile, investors have big expectations for private equity.

At least 40 percent of investors are targeting returns of at least 14 percent from the asset class, according to Preqin. Eight percent of asset allocators are hoping for private equity gains of 20 percent or higher.

Although hedge funds saw $97 billion in net redemptions last year, their 11.45 percent gain in 2019 was a big improvement from a 2 percent loss the year before, according to Preqin. Almost half of investors probed by the firm are targeting hedge fund returns of eight percent to 13 percent for their portfolios.

“Investors will be expecting their defensive investments to offer a protective hedge” when markets fall, Preqin said. The S&P 500 index has seen big drops this year, including a more than 3 percent decline on Thursday around 3 p.m. in New York.