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Alternative Asset Class Coverage of US- and EU-Based Investment Consultants – March 2015

by Matthew Rautionmaa

  • 25 Mar 2015
  • PE
  • HF
  • PD
  • RE
  • INF

A considerable number of LPs use investment consultants when trying to gain exposure to alternative assets.  The utilization of investment consultants allows LPs to take advantage of their resources and research in the alternatives field, gaining further knowledge and expertise. Consultants can specialize in a particular asset class or cover a broader scope of the alternatives universe.

Preqin tracks 310 US-based and 136 Europe-based firms covering one or more alternative asset classes, including private equity, real estate, hedge funds, infrastructure and private debt. As can be seen in the graph below, private equity, as one of the more established alternative asset classes, has the highest proportion of coverage by investment consultants in both regions.

The maturity of an industry plays a large part in the distribution of investment consultants. There is a greater proportion of hedge fund consultants in the US than in Europe, most likely due to the higher number of US-based hedge fund managers and the greater level of sophistication of the hedge fund industry in that region. Conversely, for infrastructure consultants the opposite is true. The infrastructure market in Europe is a lot more developed than the market in the US; therefore a greater proportion of consultants will be active in that region. However, this could change in the future as US-based managers become more active in the infrastructure space. Sixty-five percent of surveyed infrastructure investment consultants highlighted North America as the most attractive region over the next 12 months.

The least covered asset class is private debt, which is serviced by approximately a quarter of investment consultants across both regions. Strict monetary policies implemented in the aftermath of the financial crisis have made it more difficult for firms to take out loans from banks, which in turn have bolstered the appeal of taking on these loans in the form of private debt. The ascendency of the asset class should lead to more investment consultants extending their coverage in order help new investors navigate the asset class. This is supported by data from Preqin’s recent private debt investor survey, which saw 87% of investment consultants suggesting demand for private debt is likely to persist in the long term.

Alternative investment consultants are continually becoming more important as investors seek further advice and fund managers look to attract more capital in a dynamic environment. A breakdown of asset class coverage reveals key similarities and differences between consultants in the two largest regional markets. Private equity, real estate and hedge funds remain the most mature industries and share similar coverage in both the US and Europe. Comparing consultants’ coverage of infrastructure reveals Europe’s strong preference for the asset class due to the maturity of its marketplace and the high number of deals, although the US may see increased coverage in the future. Finally, private debt, while only being covered by about a quarter of consultants across both markets, has become an increasingly strong alternative investment preference. 

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