The future of alternatives is bright, with the financial sector growing at an annual rate of almost 10% between now and 2025.
Preqin, an alternative assets data and analytics firm, predicts that in five years the sector will have $17.16 trillion in assets under management (AUM), a 60% increase from today’s $10.74 trillion.
The two biggest drivers of that growth will be private equity at a 16% compound annual growth and private debt at 11%. By 2025, $9.11 trillion will be invested in private equity funds, accounting for over half the total in alternatives. Private debt will grow 72% to $1.46 trillion.
“Growth in the other asset classes will be more modest,” says Preqin in the first of its Future of Alternatives 2025 series, “but with our forecasts around 5% for each segment, it will still likely outpace increases in GDP.”
Preqin predicts hedge funds will continue to be the second largest class at $4.26 trillion, however growing at only about a 3.6% CAGR. Real estate, at a predicted 3.4% annual growth, will be the slowest.
The bullish report says Asia Pacific will see the fastest growth with assets increasing from $1.62 trillion to $4.97 trillion over the next five years. That will represent about 29% of the total AUM. By contrast, North America will grow modestly, reaching $8.6 trillion by 2025.
The first installment of its series offers a broad look at the future of alternatives with projections of AUM in each asset class, as well as projected growth for the industry as a whole globally, as well as regionally. Detailed insights and analysis are provided for each of the asset classes.
Future installments will focus on investors, opportunities for fund managers, global and regional developments. One installment entitled “How Megatrends Will Transform Alternatives,” will discuss diversity, big data regulation and the investment landscape post COVID.