The Growing Prominence Of Alternative Assets

Following the release of the 2015 Preqin Alternative Assets Performance Monitor, this extract from the new-look publication explores the increasing prominence of alternative assets, as well as summarizing a selection of the key findings with regards to private equity performance.

The alternatives industry has not only increased in prominence over past years but industry assets under management (AUM) have also seen significant growth. Preqin estimates that AUM has grown steadily from $5.5tn in 2012 to $7.1tn as at Q1 2015. Alternatives are commanding a great deal of attention in the investment portfolios of many institutional investors across the world, which raises the question: what is driving capital towards the alternatives industry and how far can this be expected to continue? The unique benefits that alternatives offer to investors as well as the attraction of gaining exposure to uncorrelated, risk-adjusted returns may be some of the reasons attributed to the rise in prominence of the alternatives industry. Fig. 1 shows the returns delivered by each asset class using the financial statements of 100 public pension funds in North America and Europe. According to Fig. 1, private equity has outperformed listed equity, fixed income and other alternative asset classes, especially over the longer term. Moreover, within this sample, real estate has shown its value, delivering double-digit returns over the short- to medium-term periods. Although the hedge fund asset class in this sample set has not seen the same outperformance over the same periods, wider industry trends show that Hedge Funds have demonstrated lower volatility, delivering attractive, absolute risk-adjusted returns to investors.

Throughout the 2015 Preqin Alternative Assets Performance Monitor, we demonstrate that alternatives have shown their value in meeting investors’ objectives by providing strong, risk-adjusted, uncorrelated returns and for this reason, the alternatives industry will remain as important a consideration for investors in the future as it is at present.