- Overall total net inflows into alternatives in 2016 were $669billion; bringing industry-wide AUM to $4.46trillion
- One third of LPs confirmed their current allocations to alternative investments was more than 30% with two thirds of those LPs looking to increase their investment saying they plan on increasing their allocations to alternatives by between 1% and 10% in 2017
- Survey confirms key areas of focus for LPs are Hedge Funds, Private Equity, Private Credit Funds and Real Estate
- Of those LPs interested in direct investing, 60% confirmed they had increased their pace of direct investing – as opposed to allocating to funds
- 44% of real estate managers plan to increase the number of co-investment opportunities
- 60% of LPs ranked the transparency they receive from fund managers as the most important factor while 28% of respondents confirmed they were “dissatisfied” with the level of transparency they actually receive
- 79% of survey respondents said that they had no concerns over how GPs were handling their personal information, in light of GDPR which might indicate a ‘blind trust’
The survey provides statistics and trend analysis on a number of themes including how alternative investment remains a key component of investors’ portfolios, the rise of direct investing and co-investment interest, the importance of the level of transparency LPs receive from their fund managers, regulatory pressures facing the market today, and the impact GDPR will have not only on European fund managers, but on any global fund manager with European investors.
Alternatives remain a key component of investors’ portfolios. More than one third (35%) of LPs confirmed that their current allocation to alternative investments was more than 30 percent, with one in five committing up to 10 percent to alternatives. Two thirds of LPs surveyed that were looking to increase their investment said that they plan on increasing their allocations to alternatives by between one percent and 10 percent in 2017 as the pressure that institutions face today to meet their investment targets shows no signs of easing.
“It’s definitely a high number,” comments Meghan McAlpine, Director of Strategy & Product Marketing at Intralinks. “In terms of how much money they are willing to allocate and the returns they are looking for, alternatives are still an important asset class in many respects, but nevertheless the figure was still higher than expected.”
Not everyone, however, has grand designs on increasing their exposure to alternatives. The Intralinks survey revealed various reasons among LPs for remaining cautious. These ranged from expectations of higher returns in public markets to fears that alternatives were getting too expensive. There were other opportunities with a lower risk than alternatives, and LPs were either comfortable with their current level of exposure or constrained by investment committees to increase it further.
“Also, I think some LPs have concerns over whether GPs can actually put capital to work,” suggests McAlpine. “The amount of dry powder in private equity is very high – around USD845 billion. Will deal volumes remain high? As a result, there are more LPs now looking at direct investing and co-investment opportunities to effectively deploy their capital.”
When asked which three sectors they were keen for GPs to invest in, investors cited Technology (50.4%), Healthcare (48.9%) and Infrastructure (44.4%) as the most attractive.
In addition to these discoveries, the LP survey also revealed that one of the ongoing issues and sources of frustration among LPs is the level of transparency they receive. The survey findings underscore this, with more than half of respondents (54%) confirming that they were only “somewhat satisfied” with the level of transparency they receive from fund managers. Among all the other findings, the survey concludes that how GPs are communicating with their LPs is of high importance.
“Having good communication lines is even more important than blindly giving investors a range of different templates. How GPs are engaging with their end investors is really the key point and why we conducted this survey in the first place,” McAlpine concludes.