Preqin: AUM In Alternative Assets Industry Hits Record $7.8T

Sep 5 2017 | 9:21pm ET

The alternative assets industry reached a record $7.8 trillion in assets under management at the end of 2016,. according to data provider Preqin, despite sizeable redemptions from hedge funds and well-publicized investor concerns about performance and fees. 

The industry-wide performance analysis was Preqin’s largest to date, the company said, and examines assets under management, horizon returns, public market equivalents and top performing funds. 

Key findings from Preqin's latest Alternative Assets Performance Monitor

  • Alternative Assets Industry Reaches Record $7.8 trillion in AUM.  The alternative assets industry has reached a record size as of the end of 2016, the latest data available. Hedge funds saw their assets hit a record $3.25 trillion, despite net investor outflows through the year. Private capital funds, meanwhile, increased their assets by over 7%, from $4.27 trillion as of the end of 2015 to $4.59 trillion 12 months later. Private equity funds represent the largest proportion at $2.58 trillion, followed by real estate ($785 billion), private debt ($605 billion), natural resources ($501 billion) and infrastructure ($388 billion) funds (some are counted in more than one private capital asset class due to the nature of their investments). 
  • Private Capital Funds Outperform Public Markets Over Longer Term. Looking at the median returns reported by public pension funds, over the five years to the end of 2016 private equity funds have generated a median net annualized return of 11.4%, while real estate funds have returned 11.3%. This compares to 5.2% for hedge funds, and 9.1% for listed equity. In fact, private equity funds have seen median net IRRs exceed 10% for every vintage year since 2007, while real estate fund median net IRRs have surpassed 14% in every vintage year from 2009 onwards. Only two vintage years in the 21st century, 2005 and 2006, have seen median private equity returns fall below 10%. 
  • Private Capital Funds Return Record Levels of Capital to Investors in 2016. The distributions returned from private capital funds to their investors have exceeded total capital calls in every year since 2013. The difference between the two, the net capital flow to investors, has been increasing: distributions outstripped capital calls by $121 billion in 2013, but in 2016 net capital flow to investors totaled $402 billion. The level of called-up capital fell from $656 billion in 2015 to $507 billion in 2016, while global distributions rose from $858 billion to $909 billion in the same period. 
  • Investors Report High Satisfaction with Alternative Assets Performance. The majority of investors reported to Preqin in June 2017 that they were satisfied with the performance of their investments across most asset classes. However, there is a sharp divide in opinion: over the three years to the middle of 2017, more than a fifth of investors in private equity, real estate, private debt and infrastructure said that these asset classes had surpassed their performance expectations. Conversely, across the same period 50% of natural resources investors and 70% of hedge fund investors felt that their portfolios had underperformed. 
  • Top Performing Funds Have Top Performing Successors. There is a strong correlation between the quartile performance of private capital funds and that of their successors. Thirty-five percent of top-quartile predecessor funds have top-quartile successors, while just 14% are followed by a bottom-quartile vehicle. At the other end of the scale, 38% of bottom-quartile private capital funds are succeeded by another bottom-quartile vehicle, while only 14% have successors that reach the top quartile. 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company's Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products. 

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