As the alternative assets industry continues to grow, Preqin is launching an initiative examining the Future of Alternatives. In conjunction with key industry participants, we take a five-year look into the future to see where the market will be, what changes fund managers are planning for and how investors plan to invest in 2023.
The growing demand from institutional investors for alternative assets supports the outlook for the anticipated boom of alternative assets under management over the next five years: we expect the industry to expand by some $5.2tn to $14tn by 2023. In order to get a slice of this capital, alternative asset managers will need to adapt alongside their evolving client base, be it to move into new markets or launch new products. But will they buy, build or borrow to do this?
Perhaps unsurprisingly, given the strong appetite for alternative assets moving forwards, most managers are anticipating organic growth to form a significant part of their expansion plans over the next five years. However, delving further into the results reveals some interesting findings.
More than half (51%) of all private equity managers intend to seek capital investment to expand their offerings over the next five years – a trend noticeably more marked among venture capital managers (66%) than buyout managers (25%). Buyout managers, following strong fundraising in recent years, are expecting more of the same in future, with 94% anticipating organic growth off the back of strong investor appetite to drive their firm onwards and upwards.
In private debt, a sector in which we expect assets to double over the next five years, managers are similarly bullish on their individual prospects in regards to organic growth: 93% expect this to help them expand their offering as a result of continued strong and growing interest from investors.
Despite hedge funds expecting more consolidation in their industry than in other areas of the alternative assets world, hedge fund managers themselves are not anticipating that consolidation to happen within their own businesses. No hedge fund managers that participated in the study plan to expand their products through acquisition, and just 7% expect to merge with another firm to meet their wider business objectives.
A large proportion of real estate and infrastructure managers are intending joint ventures with other alternative assets managers to form a significant part of their strategy in the next five years: 30% and 43% respectively anticipate this will help them expand their offerings by 2023, perhaps in order to gain access to bigger deals. In addition, large proportions of infrastructure managers (43%), alongside natural resources firms (40%), are also expecting to acquire other alternative assets businesses to expand their businesses.
Download your copy of the Preqin: The Future of Alternatives here.