An adage goes, “If you want to understand people’s
motives and incentives, follow the money.”
If you follow the fund industry, you will realizemoney
is in alternative assets –think private equity, hedge funds, real estate,
venture capital, among others. While alternative investments make only a small
percentage of the asset pie –they have always reaped high revenues, and often
in fact dominates the revenue earned from AuM (Assets
under Management).
The big question for professionals working in PE firms
and other alternative investment industries is: Where does investors’ interest
lie within alternative investments?
Where do the investors put most of their money?
Do they prefer private equity, hedge funds, venture,
or any other?
The answer was found in a recent (2018) EY Global
Alternative Fund Survey. Here, we dig out what the report reveals about
investors’ interest.
Two BIG revelations
Asset Managers, in both private equity jobs as well as
hedge funds, face a lot of difficulties in raising funds as investor
allocations become difficult to secure – due to unique market conditions and
changing investor demands titled toward outcome specific products. This makes
keeping the pulse of the industry pertinent. The EY report Two priorities
emerged from EY report on asset industry.
·
Raising funds, aka
asset growth, for obvious reasons remain the top priority for both hedge funds
and private equity managers. Within that, aside from flagship fund offerings,
innovation into new products and non-traditional offerings (think real estate,
private credit, and others) are gaining investors’ attention.
·
The direct
effect of diversification of products, are the need for talent that fits the
digital age. For instance, data scientists and programmers need to aid finance
professionals with their
expertise.
The finance
industry once dominated by quantitative managers is becoming open to data
scientists, programmers and other talent pools.
Most Preferred Alternative Funds – For Investors
Among all alternative funds, investors invested the
most in following categories. This is the ranking of investor’s favorite
alternative funds:
1.
Hedge Funds –
40%
2.
Real Estate –
21%
3.
Private Equity –
18%
4.
Other
Alternative asset classes – 9%
5.
Private Credit –
9%
6.
Real Assets – 3%
Hedge funds gain the lion’s share of investor’s asset
allocation; although investors have been reported to be rebalancing their
allocations with private equity gaining the most ground.
Why hedge fund tops the list, and how private equity
is set to take a part of hedge funds share in years to come? Let’s take a look.
PE
vs HF: Why the demand for Private Equity is growing?
Private Equity allocations seem to be growing fast; in
fact, much faster than other alternative investments. When investors were asked
their future plans for hedge funds, which currently trumps all other investment
allocations, it emerged that the hedge funds allocations will remain flat comparatively.
The vast majority of investors will cut back on hedge
funds and shift to private equity. Reasons being:
·
Investors are
finding it difficult to justify higher fees of active funds as their returns
have been weak.
·
The
receptiveness of PE professionals in utilizing new product offering to grow investors’
asset is high in private equity.
Wrapping
Up
Investors are looking for
innovative products and non-traditional offerings. For those looking for careers
in private equity, it is no less than a golden opportunity – to fulfil the
skills required by the industry. Those in private equity or hedge fund business
who identify these opportunities will be able to reap benefits to support their
industry.
Competition for new talent
remain robust in the funds industry, with both Private Equity Firms and Hedge
Funds, looking for a share of each.
