Alternative assets fund managers, who are currently holding more than USD13 trillion in assets under management (AUM) — continuing the year-on-year growth since 2010 — are expected to hold USD23.21 trillion by the end of 2026, according to Preqin’s 2022 Global Alternatives Reports.
Private equity & venture capital (PEVC) is by far the largest asset class, with AUM estimated to be in excess of USD11 trillion as of December 2026, accounting for almost half (49 per cent) of alternative assets AUM. Private debt is expected to be the fastest-growing alternative asset class over the next five years – with a compound annual growth rate (CAGR) of 17.4 per cent, taking AUM to an estimated USD2.69 trillion by the end of 2026 – as institutional investors continue to look for reliable income streams. Environmental, social, and governance (ESG) factors have become increasingly important among alternative assets, in particular for infrastructure and natural resources.
Most institutional investors remain committed to investing in alternative assets, according to Preqin’s survey of over 300 investors conducted in November 2021. Investors value the diversification, high absolute returns, and strong risk-adjusted returns they get from their allocations. Across alternatives, an average of 86 per cent of investors said performance had met or exceeded expectations in 2021. While competition for assets, valuations, and rising interest rates top the list of investor concerns, over half (51 per cent) expect to invest the same amount in alternatives over the next 12 months, and almost a third (32 per cent) plan to invest more.
Preqin data reveals that the alternatives markets growth rates in the three largest regions are surprisingly similar. North America is expected to grow the fastest – with a predicted CAGR of 15.4 per cent between 2021 and 2026 – closely followed by Asia-Pacific (15.0 per cent) and Europe (14.0 per cent). In North America, private equity, private debt, and real estate are all estimated to hold more than USD1tn of AUM in 2026 each, with the largest asset class, private equity, expected to account for 67 per cent of private capital AUM. In Asia-Pacific, private equity will be even more dominant than it is now, with its USD1.87 trillion of AUM accounting for 83 per cent of the private capital total in 2026; real estate, with AUM of USD191 billion, is expected to be a distant second.
Despite certain regulatory changes, such as the US Department of Justice permitting some types of 401k investment in private equity, progress towards retail investors investing in alternative assets – also known as retailisation – has been slow. That said, Preqin expects retail investors to become a growing force in alternative investments over the coming years. Developments in this area will have a disproportionately large impact on the profile and reputation of the alternatives industry, which could ultimately be a positive development, helping to increase transparency in these traditionally opaque markets.
David Lowery, Senior Vice President, Head of Research Insights, at Preqin, says: “Developments around Covid-19, inflation and ESG will remain at the top of the news agenda for 2022 and greatly impact alternative investments. Economies globally will continue to re-adjust to the new normal. Alternatives are well-known to adapt well to changing market conditions, and, ultimately, will continue to prosper.”