Most opting for alternatives amid belief of equities’ peak
The world’s largest investors are spreading their bets in an uncertain economic and geopolitical climate.
Institutional investors are diversifying with 79% allocating funds to alternative investments and half investing in three or more asset classes. The most popular asset classes are private equity (57%) and real estate (59%).
The figures, from a report by industry analysts Preqin, reveal that diversification is the top reason for investing in alternatives.
“The diversification benefits of alternative assets continue to attract institutional investors. Four out of five institutions now have exposure to at least one alternative investment fund, and one in ten have exposure across all six asset classes,” said Amy Bensted, Preqin’s head of hedge funds. “Investors seek to diversify into alternative assets for many different reasons: for private equity, it’s the potential for high absolute returns; for real estate, infrastructure and private debt it is to add a reliable income stream; and for hedge funds to reduce correlation to other assets.”
Across all asset classes, more respondents intend to allocate more to alternatives in the coming year than plan to cut back. Infrastructure will be allocated more funds by 43% of investors, with 27% saying that this asset class has exceeded expectations in the past year.
Have equities reached peak?
The survey found that 56% of institutional investors believe that the equity market has reached its peak.
Investors’ return expectations for private equity, real estate and infrastructure have fallen to 12%, 7.9% and 7.7% respectively.
“With concerns over high asset pricing and its effect on future exit profitability, investors believe that the opportunity for outperformance might be constrained in the future. However, alternatives are nonetheless producing strong risk adjusted returns for many investors, and because assets can help protect investors in the event of a market correction, alternatives remain a mainstay of most investment portfolios,” added Bensted.
