Preqin Survey: Alternatives investors wary of ‘toppy’ markets

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Results from The Preqin Investor Update on Alternative Assets H2 2019

A recent Preqin survey shows an increasing number of investors believe that equity markets are at a top and likely to correct. Preqin surveyed 177 institutional investors in July 2019 to gauge investor sentiment across various alternative asset classes.

According to the report, investment enthusiasm for alternative assets remains undiminished, with industry AUM at $9.5 trillion as at end-2018. Though investors’ outlook on the future performance of alternatives remains optimistic, this may not last.

“Amid rising asset valuations and record levels of dry powder, a growing proportion of investors believe we are at the peak of the equity market cycle and that a market correction is imminent,” the report said.

Key Preqin survey findings

  • Believe equity markets are topping out – 74% of respondents
  • Think private equity assets are overvalued – 73%
  • Believe real estate assets are overvalued – 65%
  • Will not change private capital investments even though equities correct – 64%
  • Shifting hedge fund portfolios defensively – 64%
  • Satisfied with 12-month returns on private equity – 93%
  • Satisfied with 12-month returns on private debt – 88%
  • Not satisfied with hedge fund returns – 46%
  • Not satisfied with returns on natural resources – 37%
  • Hedge funds and natural resources funds expected to perform better in the next 12 months
  • Private debt and real estate expected to decline in the next 12 months

Bottom line

Even though concerns swirl around frothy equities and overpriced alternative investment assets, – particularly private equity and real estate – “investors will be relying on these funds, and their proven long-term returns, to deliver during a downturn; nearly 90% of LPs plan to increase or maintain their  exposure in response to the potential correction in equity markets.”

Another recent Preqin report showed that hedge fund outflows increased for the fifth-straight quarter.

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