Institutional investors to allocate more to alternative assets

The overall outlook for investors in alternative assets is positive, with the majority looking to either maintain or increase their capital commitments in the next 12 months and the longer term, according to a survey by Preqin.

Infrastructure has the potential to see significant growth in the coming years, with many investors interested in the diversification and long-term stable returns the asset class can provide.

Sixty-three percent of investors expect to commit more capital to the asset class in the coming year than they did in the past 12 months. While allocations to infrastructure are typically smaller than for other alternative asset classes, 58% of respondents expect to increase their allocations to infrastructure in the longer term.

On the real estate side, there’s unlikely to be a significant increase in the amount of institutional capital flowing into the sector.

While 30% of respondents do plan to commit more capital in the next year, 19% expect to commit less. However, the outlook is more positive over the long term. The majority of investors are below their targeted exposure to the asset class, and 40% expect to increase their allocation to real estate.

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While more than one-quarter of investors in hedge funds were dissatisfied with the returns they had received in the past year, a large proportion of investors in hedge funds have significant allocations to the asset class, suggesting that many investors do not allocate solely to generate returns but also because of the liquidity, diversification and volatility dampening that the asset class can provide.

Although a greater proportion of investors in hedge funds plan to reduce their allocations to that asset than any other alternative asset class, investor appetite remains strong, with 88% of investors allocating the same amount or more capital in the coming year than they did in the past year and 82% maintaining or increasing their allocations to hedge funds in the longer term.

As the performance of private equity continues to improve, investor appetite for the asset class is also increasing.

Eighty-six percent of investors feel performance of the asset class has met or exceeded their expectations, and, correspondingly, many investors are allocating more capital in the coming year. Thirty-one percent of investors are planning to commit more capital in the coming year, and 34% anticipate increasing their allocations in the longer term.

The findings are based on extensive interviews with 450 investors across alternative assets conducted by Preqin from June to August 2013. They manage a combined US$11.7 trillion in assets and have a total of more than $750 billion invested in alternatives.

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