Despite market volatility and an uncertain economic outlook, investors are committed to their alternative asset programs, declares Preqin in its half year investment update.
The majority of investors in alternatives say they intend to stay the course this year, telling Preqin they are satisfied with the performance of their portfolio over the last year.
“Almost all investors intend to either maintain (60%) or increase (33%) allocations to private capital, highlighting their confidence in the market and knowledge that funds that have invested through downturns and recessions have historically provided the best returns,” says Preqin.
The only sector where investors were solidly disappointed is natural resources. There, 58% said performance had fallen short of their expectations.
Hedge fund investors were evenly split between those saying performance failed to meet their expectations and those who said the opposite. But when those who felt the asset class had exceeded expectations are included, hedge funds came out on the positive side.
Preqin conducted its survey of institutional investors in June, before hedge funds had a third consecutive positive month. July was another strong month for the asset class. Preqin’s All-Strategies Hedge Fund benchmark turned positive for 2020 and improved the annual return to 5.46%.
Yet, even before knowing this, 44% of hedge fund investors said they expected to invest more capital in the class in the next year. Among the six asset classes, only private debt had a higher percentage of investors (48%) expecting to increase their investment.
Fewer, however, foresee much improvement in their portfolios over the next 12 months. Preqin says hedge fund investors are the most optimistic with only 2-in-5 survey respondents expecting improvement. Private debt investors were not far behind, with 34% saying they expected improvement.
“In absolute terms investors expect their private capital portfolios to perform worse over the next 12 months, a finding that is in line with the economic devastation arising from the pandemic,” Preqin says, adding, “any investment will be hard pressed to perform well.”
“On balance, investors expect COVID-19 to have a slightly negative effect on the performance of their alternatives portfolios in the long term.”
Still, as Preqin noted, 63% of investors do not plan to change their strategy because of COVID-19; 29% intend to invest more vs. 7% that will invest less.
“The economic fallout from COVID-19,” declare Preqin, “Has not diminished investors’ appetite for alternatives.”