Led By Hedge Funds, Alt Assets Approach $7T

Jan 21 2015 | 11:26am ET – FINalternatives.com

Led By Hedge Funds, Alt Assets Approach $7T

Thanks in large part to hedge funds, the global alternative assets industry attracted an estimated $690 billion in 2014, bringing total assets under management to a whopping $6.91 trillion.

Preqin’s 2015 Global Alternatives Report examined inflows for hedge funds, private equity, private debt, real estate and infrastructure funds in 2014, and found the total was up from $648 billion in 2013.

“The alternative assets industry has reached $7 trillion in assets in 2014,” said Preqin CEO Mark O’Hare in a statement. “The past year has seen significant growth in the assets held by alternatives managers, most notably in the value of unrealized assets in manager portfolios. Even with the sub-par performance seen by hedge funds over the course of the year, these managers witnessed the largest growth in their asset base as investors looked ot the true value investmens in hedge funds can bring.

“The recent news of CalPERS cutting hedge funds and reducing the number of private equity partnerships within their portfolio does not reflect the wider sentiment in the industry,” “From our conversations with investors, the majority of investors remain confident in the ability of alternative assets to help achieve portfolio objectives. Indeed, across all asset classes, a much larger proportion of investors plan to increase their exposure rather than cut back their allocations to alternatives. However, as the investor base for alternative assets grows and becomes more sophisticated, fund managers continue to face the challenge of how to attract this new capital. Those fund managers that continue to innovate with new products and solutions, as well as listening to investor demands for better alignment of interests and lower fees, may well be winners in 2015.”

Here’s a look at how the four alternative asset classes did in 2014:

Hedge Funds

Hedge funds reported returns of 3.78% in 2014—their lowest returns since 2011—but nevertheless saw their AUM grow from $2.66 trillion at end-2013 to $3.02 trillion at end-2014. That said, investors told Preqin that performance and fees would be key issues for the industry in 2015.

Private Equity

The private equity industry managed assets of $3.8 trillion as of June 2014 (including private real estate and infrastructure funds), up from $3.5 trillion as of June 2013. In H1 2014 (the most recent data available), p.e. funds distributed $444 billion to investors, making it likely full-year totals will surpass the $561 billion distributed in 2013. A full 54% of p.e managers told Preqin they felt competition for deals had increased from 2013 to 2014.

Real Estate

The private real estate industry managed assets of $742 billion as of June 2014, up from $657 billion at the same time in 2013. Growth in the space has been driven primarily by improving valuations and unrealized assets. Such higher valuations have affected new investment activity—66% of fund managers told Preqin attractive opportunities are harder to find at suitable prices. That said, the asset class has performed well over the last three years, producing annualized returns of 16.7%.

Infrastructure

Infrastructure assets hit a record high of $296 billion as of June 2014, up from $255 billion a year earlier. Investors are seeking exposure to infrastructure in a variety of ways, according to Preqin. A full 56% expressed interest in direct investments in infrastructure assets over the coming year. The average infrastructure fund closed in 2014 had assets of $1.0 billion, up from $6.88 million in 2013.