Alternative investment professionals reveal bullish outlook for private equity in EisnerAmper survey
Alternative investors see continued opportunity within the private equity industry after a record-breaking year, according to a new survey of 184 alternative investment professionals by advisory and accounting firm EisnerAmper.
The survey, which was conducted during EisnerAmper’s 6th Annual Alternative Investment Summit, revealed that half of respondents (51 per cent) expect private equity to be the asset class LPs increase investment allocations the most over the next 12 months, with 27 per cent and 22 per cent, respectively, stating venture capital and hedge funds.
Private equity beat out venture capital and hedge funds as the industry that alternative investors see as most primed for ESG investment in the next three years. Barriers to implementing ESG still remain, however, with alternative investors citing the lack of standardised reporting and data sets (48 per cent) as the biggest barrier, followed by sourcing quality investment opportunities (20 per cent) and dispelling the notion of poor returns (17 per cent).
The survey also found that the world’s second-largest economy is still very much investible as 92 per cent of private equity and venture capital professionals have not changed their investment strategy in China amid the recent regulatory crackdowns on private companies. Only 3 per cent of hedge fund professionals selected the regulatory crackdowns in China as the factor expected to most impact investments to hedge funds over the next 12 months.
When asked to name the two industries that offered the best investment potential for the remainder of Q4 2021, 50 per cent of all respondents named technology. Healthcare/life sciences was named as a top sector by 39 per cent of respondents, and infrastructure (23 per cent) rounded out the top three. Notably, while technology and healthcare/life sciences were cited as top sectors in 2020’s survey, infrastructure saw increased interest compared to last year, when it received only 9 per cent of the vote.
“Despite the lingering effects of the Covid-19 pandemic, a new administration and ongoing geopolitical events, 2021 was a very good year for alternative investment managers,” says Peter Cogan, Managing Partner of EisnerAmper’s Financial Services Industry. “The survey revealed that investors are adapting their strategies to take advantage of these micro-and macro-economic trends to generate alpha.”
When asked which two strategies private markets investors expected LPs to increase allocation to most in the next 12 months, growth equity (37 per cent) and impact (31 per cent) emerged as most popular. Differentiated strategies can give firms a leg up while facing high valuations amid a competitive landscape, which was identified as the factor that could most impact investments by private equity and venture capital over the next 12 months.
On the hiring front, PE and VC professionals are looking to bolster their investment teams in order to capitalise on the hot dealmaking environment. Forty-five percent of firms expect to hire for their investment teams in the next 12 months, up from 27 per cent in 2020, while 31 per cent expect to hire for their operations teams. Outsourcing has also grown in popularity within the private markets with 61 per cent of firms already outsourcing back-office/middle-office functions or planning to do so in the next 12 months.
However, PE and VC professionals are aware of the challenges that their industries face going forward. The top two challenges for the next 12 months were cited as increases in capital gains tax rates and escalating regulatory scrutiny/compliance obligations. While topics like dealmaking and trade policy dominated conversations about challenges for these industries in the past few years, it’s clear that PE and VC professionals have shifted their focus elsewhere.
“PE and VC have had a strong year on the dealmaking front, and we expect this trend to continue as LPs are keen to invest and investment teams are looking to hire,” says Cogan. “There are certainly challenges ahead when it comes to taxes and regulations, and we’re seeing firms address this by outsourcing some of their back- and middle-office functions to service provider experts while they focus on their portfolios and LPs.”