Institutional investors are increasingly favoring the biggest, most established alternative managers as they make allocations during a global pandemic.
Alternative investment fund clients surveyed by SS&C Intralinks reported an increased preference for $1 billion-plus and $5 billion-plus fund managers in the investment technology firm’s global poll of around 200 limited partners.
For example, 15 percent of surveyed LPs said they were favoring general partners with more than $5 billion in assets under management, compared with just 5 percent last year. Meanwhile, the proportion of respondents prioritizing mid-sized managers — those with between $100 million and $500 million in assets — fell from 53 percent to 41 percent.
“It suggests that LPs are looking to back the most trusted names in the industry to guard against reputation risk, as well as appease investment committees who might be cautiously minded in the current market,” SS&C Intralinks said in a report on the findings. “Another factor could be that large-cap managers are more likely to have experienced a market downturn, such as in ’08, and considered a safe pair of hands.”
Large, established asset managers have been seen as having the advantage during the coronavirus pandemic, as the inability to hold in-person meetings and events has made it more challenging for emerging managers to get in front of prospective investors. A poll by placement agent Eaton Partners last month found that 37 percent of surveyed limited partners were focused on re-upping with their incumbent managers, compared with 15 percent who were prioritizing making commitments to new managers.
According to SS&C Intralinks, emerging managers may have the best chances of attracting capital in private equity. Asked where they would be most focused on backing first-time funds and emerging managers, more than a third of respondents cited private equity. The next-most-popular alternative segments were hedge funds, private debt, and venture capital, with each attracting between 15 percent and 20 percent of respondents.
Survey respondents said “attractive” return potential was the most important factor in deciding to allocate to an emerging manager, followed by niche strategy options and the desire to access new investment talent. The ability to better negotiate fees was seen as the least important reason to invest with new firms.