The alternative investment industry is expected to grow 59% by 2023, reaching $14 trillion in assets in five years, according to new search from alternative investment industry data provider Preqin.
The industry was managing $8.8 trillion at the end of 2017, according to Preqin, which says growth will be driven by investors’ need for yield, the strong track record of alternative assets and the dwindling number of publicly traded companies. The report, published online on Friday, is based on surveys of 300 fund managers and more than 120 institutional investors conducted by Preqin in June.
The data shows that investors plan to increase their allocations to three broad categories over the next five years: 79% said they would increase their private equity allocation, 70% plan to increase allocations to infrastructure, and 62% said they would increase their allocation to private equity. % plan to increase allocations to private debt. .
As such, private equity assets are expected to grow 58% over the next five years, overtaking hedge funds as the largest alternative asset class, according to the report. The private debt market is expected to double in size, reaching $1.4 trillion by 2023, according to Preqin.
Additionally, 93% of private debt fund managers say they expect their growth to be organic rather than through acquisitions or roll-up strategies. In other words, the increase in allocator interest will drive the growth of the asset class.
While so-called real assets make up a smaller part of the alternative investment universe — according to Preqin, they make up 8% of the industry’s total assets — they are expected to be the fastest growing group of assets over the of the next five years. Real assets, driven by natural resources, are expected to represent 13% of alternative assets by 2023, reaching $1.8 trillion.
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Much of this growth will come from family offices and sovereign wealth funds. Fund managers see family offices and sovereign wealth funds as more important sources of capital in 2023, according to the report.
These funds are beginning to believe that they can manage their own money, rather than outsourcing asset management. This is accompanied by a push to bring alternative investing in-house.
“Since the global financial crisis, we have seen more family offices and sovereign wealth funds in the global marketplace,” Michael Stirling, managing director of Stirling Infrastructure, said in the report. “They manage more capital, are more sophisticated and generally have more in-house expertise than before the global financial crisis.”
Banks and defined-benefit plans are expected to be much less important sources of capital going forward, fund managers say, the report says.
It is expected that there will be more fund managers to choose from among dispatchers in 2023. Data from Preqin shows an expected increase of 21%, bringing the total number of fund management companies to 34,000 in 2023.