Alternative Investments Industry Near $7 Trillion in Assets
"When people are free to do as they please, they usually imitate one another."
The Prequin 2015 Global Alternatives Report reveals that the “Alternative Assets Industry” now holds a staggering $6.9 Trillion in assets. This is private capital invested in one of (a) Private Equity, (b) “Hedge Funds,” (c) “Private Debt” (which we take to mean non-bank lending), (d) Real Estate, and (e) Infrastructure.
In the past two years, the industry has added $1.34 Trillion in assets, up 24%. And private equity and is the place to be, with annualized returns of 16.7% over the past 3 years in real estate and a blistering 25.9% in PE. However, we note one key element of these figures.
“The alternative assets industry has reached $7 trillion in assets in 2014. The past year has seen significant growth in the assets held by alternatives managers, most notably in the value of unrealized assets in manager portfolios.”
The value of unrealized assets. No doubt the alternative investment space is doing great, but the most notable part of the significant growth is that capital has been deployed into products and projects whose market value has increased. Until we sell the asset (or borrow against it), the value is just a number. A very nice number, but just a number.
“Even with the sub-par performance seen by hedge funds over the course of the year, these managers witnessed the largest growth in their asset base as investors looked to the true value investments in hedge funds can bring.”
This tortured sentence is a nice way of saying there just aren’t many options out there to make a good return, and hedge fund managers are really good at sales.
Real estate and infrastructure have done exceptionally well, though we may be near the turning point, “with 66% of fund managers saying it is harder to find attractive investment opportunities at suitable prices in the current market compared to 12 months ago.” We have personal evidence of this as well from real estate investors in Atlanta and elsewhere.
The market is hot: an all-time high of over $1 Trillion in private real estate and infrastructure fund assets, 83% of real estate fund managers reporting an increase in investor appetite, and 2/3 saying good deals are harder to find. We think that while it probably isn’t warranted to get out of that market, it’s probably past the time to get in.
For the Prequin press release regarding the study, click here.
