What impact has COVID had on alternatives allocations?

The world’s largest investors appear to be holding firm with their positive view of alternatives despite some concerns about short term performance.

A survey of institutional investors by industry analysts Preqin shows that 63% of respondents are not planning to change their investment level in alternatives in response to the COVID-19 crisis.

In fact, almost three in ten respondents said they were planning to invest more in alternatives in the long term.

This does not mean that things are all rosy with 42% indicating that they expect returns to be lower as a result of the crisis, while 30% are expecting them to hold steady and 29% expect a decrease.

Most investors are satisfied with their returns over the last 12 months. In private equity, 72% of investors surveyed say returns have met their expectations. In private debt, infrastructure, and real estate, 74%, 72% and 66% of investors respectively said the same.

Hedge funds disappoint
Hedge funds and natural resources are the two main exceptions to the satisfactory returns seen elsewhere.

Almost half of respondents said that they were disappointed with returns from hedge funds, with natural resources cited as the worst asset class; 58% of respondents said returns were below expectations.

Dave Lowery, Head of Research Insights, said that despite the challenges, confidence in alternatives remains strong for two key reasons.

“First, alternatives funds in most asset classes have been consistently meeting investors’ expectations in recent years. Second, the industry performed well during previous downturns, and so may be seen as an important source of returns. All in all, the sentiment from investors is as good as could be hoped for and raises the prospect of a rebound in activity in the second half of the year and into 2021,” he said.

Of investors surveyed, 33% believed we are at the peak of the equities cycle, slightly outnumbering the 29% who think equities have already entered a recessionary phase.