Preqin, the global firm focused on alternatives data and insights, recently released its Investor Outlook H2 2024 report.
Their Investor Outlook report series occurs on a biannual basis and is based on surveys conducted in-house. Alternative investors’ responses provide exclusive insight “into their current sentiment towards all asset classes across global regions.”
For this H2 2024 report, there were 185 respondents.
The report highlights that alternatives remain “a key component of investment portfolios and will be for the long-term, as per institutional investors’ survey responses in June 2024.”
Overall, the results show that alternatives “are key to building resilience in portfolios amid continued uncertainty.”
This uncertainty, in private equity and venture capital, is “around the exit environment, while uncertainty around interest rates affect private debt, real estate, infrastructure, and hedge funds (with stock market volatility for the latter also key).”
Strong sentiment remains for private equity and private debt
The report finds that almost half (49%) of surveyed investors globally “consider private equity to be overvalued, as of June 2024.”
However, for context, the number of investors “who believe that private equity is overvalued as of June 2024 is lower than in our June 2023 and June 2022 surveys, at 53% and 66%, respectively.”
Looking at investors’ views on future private equity performance, 45% believe it “will perform better over the 12 months from June 2024, compared to 26% believing so for the 12 months from June 2023.”
Regarding private debt, 63% of investors see “the asset class performing about the same over the coming 12 months compared to the previous 12 months, up from 37% in our June 2023 survey.”
However, 30% of private debt investors “expect performance to increase over the 12 months from June 2024, compared to 53% stating so in June 2023.”
Infrastructure investors’ risk appetite increases while real estate investors expect better short-term performance
The report goes on to highlight “that infrastructure investors’ risk appetite is growing. Core-plus infrastructure funds are stated as offering the best opportunities for investors, as of June 2024, at 57% of respondents.”
This has risen from 40% of respondents as of June 2023. Notably, the typically highly leveraged asset class “has exposed investments more so to the higher for longer interest rate scenario and may explain why investors are increasing their risk appetite.”
Indeed, 67% of respondents cite interest rates as “a key challenge for the coming 12 months from June 2024, as 55% did in June 2023.”
Aligning with infrastructure investors, real estate investors “see interest rates as the biggest challenge to returns generation over the 12 months from June 2024, with 78% of respondents stating so.”
The report notes that interest rates “have affected performance of real estate investments more drastically than other asset classes.”
As of June 2024, 66% of investors report “that asset prices were lower than 12 months ago, with over half (51%) of investors thinking their investments have fallen short of expectations.”
However, 52% of real estate investors expect performance “to improve over the 12 months from June 2024.”
This compares to 15% of respondents believing so as of June 2023.
Additional key report facts:
- Private equity: 80% of surveyed investors cite the current exit environment as a key challenge for private equity returns generation for the 12 months from June 2024 – the highest of all possible answers. Preqin analysts highlight that this concern aligns with 57% of investors’ opinion, seeing secondaries as the best opportunities in the next 12 months, as of June 2024.
- Venture capital: Asset valuations and the exit environment remain the key concerns for investors over the 12 months from June 2024, with 63% of respondents stating so for each answer. Lead author of the report and the venture capital chapter, Michael Patterson, notes how this is materially impacting capital commitment plans and fundraising. 59% of respondents intend to commit to a venture capital fund in H1 2025 or later, as of June 2024.
- Private debt: Direct lending funds remain the most favored strategy for investors, with 70% of respondents saying so, as of June 2024. Direct lending has now been the most popular strategy for investors since 2021. Asset-backed lending is the most popular emerging strategy, with 58% of respondents stating so.
- Hedge funds: 35% of investors state that they plan to reduce their allocations to hedge funds, in the 12 months from June 2024. This has grown from 26% planning on reducing allocations from the 12 months from June 2023. Notably, 68% of respondents intend to defer their next capital commitment to 2025, within which, 40% state that being in H2 2025 or later.
Michael Patterson, Senior Associate, Research Insights at Preqin says:
“Alternatives continue to be a key component of portfolios. The key reasons institutional investors cite for investing in alternative assets are diversification, return enhancement, and reducing portfolio volatility. It’s not surprising that over the coming year institutions expect to invest more; private debt, private equity, and infrastructure are expected to be the biggest recipients of more capital flowing from investors over the short term.”