New research from data and intelligence provider Preqin has found that high asset values are an overriding concern for alternative asset investors across a range of sectors, although investor sentiment remains divided over other issues facing the industry.
In particular, 72% of real estate investors and 86% of private equity investors cited valuations as a key concern in the months ahead.
'Currently, investors face the challenge of choosing between more than 17,100 alternative assets funds which are open to investment, and fund managers face unprecedented levels of competition,' commented Oliver Senchal, head of real estate products. 'These factors, as well as strong performance from the majority of alternative asset classes, and record levels of dry powder, have contributed to investors’ increased concern over high pricing in the industry.'
Preqin’s latest survey finds that alternative-focused funds have generally been satisfied with the performance of their portfolios in recent years, and most are seeking to maintain or increase their allocations over the next 12 months.
However, across all closed-end private capital asset classes, investors reported high pricing as a key challenge facing the industry, with deal flow also a prominent concern.
Record levels of dry powder
As dry powder has reached record highs across the private capital industry, and the number of funds seeking investment has risen, it is becoming an ever-increasing challenge for investors to find attractive opportunities to which they can allocate capital, the report said.
53% of real estate investors said that felt it was harder to source attractive investment opportunties than 12 months ago, although 95% of investors felt that their property investments had met or exceeded expectations over the past 12 months. Some 36% planned to increase their allocation to real estate over the longer term, with 59% maintaining their allocation.
Preqin found that 78% of institutional investors currently invest in alternative assets, and 47% invest in three or more asset classes. The most-targeted asset classes are private equity and real estate, with 56% of investors involved in each respectively.
As investors flock to alternatives, they are increasingly opting for bigger, more established firms. This places pressure on less established fund managers, who are facing greater competition for the remainder of investor commitments and will have to find ways to stand out from one another in order to attract capital,' added Senchal. 'However, strong long-term performance by alternatives have continued to entice investors to private capital, and we expect to see further expansion of the alternatives industry.'
