Future of Alternatives 2025: Preqin Forecasts Alternative AUM Growth of 9.8% through to 2025

Using a range of linear models, we predict which asset classes will enjoy the fastest growth over the next five years

Preqin’s assets under management (AUM) forecast model utilizes a range of sub-models to achieve its outputs, with the impact of the COVID-19 pandemic reflected in the forecast data. The model points to significant growth in global AUM across all alternative asset classes. Between the end of 2020 and the end of 2025, global AUM in alternatives is expected to increase by 60%, equal to a CAGR of 9.8%. The rate of growth should far outpace global GDP and inflation, with significant real appreciation across the alternative asset space. 

The distribution of this growth will not be even. Private equity and private debt assets are set to grow by 15.6% and 11.4% per year, respectively. At the other end of the scale, all other asset classes are expected to grow at a rate of 5% per year or less.

The bulk of AUM growth in private markets is expected to take place in Asia-Pacific, where we predict AUM will swell from $1.62tn in 2020 to $4.97tn in 2025. The twin factors of lower penetration rates and faster GDP growth than more established markets in the US and Europe will attract significant interest from both investors and fund managers. 

We expect AUM growth to be strongest in the private equity market. Private equity assets have displayed their resilience during times of economic stress and have generated returns superior to other asset classes. With the market less mature in fast-growing Asia, a large proportion of the market growth will come from that region. 

Private debt AUM growth is not far behind that of private equity. The asset class is likely to be buoyed by the global hunt for yield in an era of ‘lower for longer’ interest rates – the phrase may have been overused in recent years, but that does not make it less true. With many government bond yields in negative territory, and some corporate bonds following a similar path, long-term investors that need to match income with liabilities are likely to drive demand for assets with steady income streams. Private debt funds have performed exceptionally well, delivering a horizon IRR of 8.8% in the 10 years to December 2019, according to Preqin Pro.

Methodology
Preqin’s AUM forecasts are the results of internal collaboration between our dedicated Data Science and Research Insights teams. 

The Preqin dataset includes historical AUM across asset classes and geographies, as well as fundraising and deals. This data was overlaid with historical time series for a range of macroeconomic data, such as GDP, inflation, and central bank policy rates across major global economies including the US, UK, the eurozone, China, and Japan. Various modeling techniques were explored in order to select the methodology most appropriate to the dataset. Ultimately, an ensemble of linear models, with adjustments based upon experience within the Data Science and Research Insights teams, was selected. Adjustment was included to account for the conservative estimates of the model, compared to challenger models.

We will continue to develop this model, with future iterations expected to highlight a range of potential sensitivities, allowing users to amend the various inputs and produce their own forecasts. 

Download a data pack containing all the charts in our asset class forecast articles for Future of Alternatives 2025. For more predictions and projections from Preqin on the future of the alternatives industry, visit our Future of Alternatives 2025 Content Hub.