Asset pricing is seen as the biggest challenge to return generation in 2020 across all private capital asset classes, according to a report by alternative investments tracker Preqin’s Investor Outlook: Alternative Assets, H1 2020.
This concern comes, even as most investors said that their investments in private capital fund managers witnessed good returns in 2019.
“A minimum of 71% of investors in each private capital asset class said that returns met or exceeded their expectations. Even among hedge fund investors, 59% of investors felt returns met or surpassed their needs, up from 45% at the end of 2018," the Preqin report said. The highest proportion was among private debt investors (89%). In private equity, 87% of respondents said that their investments met or exceeded their return expectations in 2019. Enthused by the 2019 returns, a vast majority of investors in each asset class will maintain or increase their allocations in the next 12 months and over the longer term, the report said. “A minimum of 77% of investors in each asset class will maintain or increase capital commitments in 2020 compared to 2019. In the longer term, at least 81% will keep or raise their allocations," the report said.
However, pricing of private capital deal opportunities and the effect of market volatility and political uncertainty on hedge funds, remain big concerns for investors. Hedge fund investors most commonly cited stock market volatility (44%) and the geopolitical landscape (34%).
“The position of the market cycle is still at the forefront of investors’ minds – even more so in 2020 as we see major stock indices record sizeable losses. But if anything, this concern is only increasing their appetite for alternative assets. Strong performance has broadly met expectations, and investors are doubling down on the sector to keep providing returns in difficult times. Choppy waters are ahead, and the industry is not immune to trouble, but for now, investors are still seeking alternatives,’ said Nicole Lee, head of content at Preqin.