Alternative Assets Investors Face Increasingly Daunting Fund Selection Process

by Andrew Moylan

  • 19 Sep 2016
  • PE
  • VC
  • HF
  • PD
  • RE
  • INF
  • NR

Preqin’s latest survey of over 490 institutional investors globally shows that while alternative assets remain a crucial component of many portfolios, investors are finding it harder to identify attractive investment opportunities compared to a year ago. With a record-high 2,798 private capital funds in market, and 13,725 hedge funds open for investment, choosing the right fund is challenging; 57% and 54% of real estate and infrastructure investors respectively are finding it harder to find attractive opportunities. At the same time, among private equity and hedge fund investors, 47% and 46% respectively stated the same.

Although private capital investors generally stated that they felt the balance of power with their fund manager was shifting towards them, there remain some aspects of the fund selection and marketing process which they view unfavourably. For instance, fund terms remain a key issue across the industry; at least 80% of investors across all asset classes stated that they had previously decided not to invest in a fund due to the proposed terms, while more than a quarter in each asset class said they frequently did so. Investors also felt that firms must work harder when promoting their funds: in excess of a third of investors across the alternatives spectrum commonly find that fund marketing documents do not meet their needs. Notably, almost 10% of investors in real estate, hedge funds and natural resources stated that fund marketing documents always fail to meet their needs.

Institutional investors remain committed to alternative assets and, in most cases, far more investors expect to grow their allocations to these asset classes than intend to reduce them. However, it is undoubtedly a challenging time for investors, with an increasingly congested market making it difficult to select the right investment manager or vehicle, while fund managers face a battle in standing out from the crowd and attracting fresh investor capital.

Investors pinpointed fund manager marketing documents and proposed fund terms as particular areas for concern; these issues seem to be present across all asset classes, and serve to illustrate the challenges investors face in committing to vehicles. Although more investors believe that the dynamic is shifting in their favour than against them, managers must ensure that they maintain open and effective communication during the fundraising process.

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