The private equity industry received the greatest feedback, with 50% of institutional investors citing the outperformance of expectations of this asset class, followed by real estate strategies (45%) and real assets/infrastructure (38%).
The majority of investors in the survey expect to keep their alternative asset allocations constant, however of those expecting allocation changes, “most state they will increase their allocations in the next three years,” the survey indicated, with private credit identified as the largest expected beneficiary of this shift, as “many investors believe that this period of rising interest rates and deteriorating economic conditions will create a credit cycle that allows for interesting and lucrative investment opportunities in this space.”
The survey also revealed that in response to rising demand alternative fund managers are increasing their product offerings in areas such as illiquid credit, real estate, private equity, venture capital, and opportunistic or special situations. Managers are also “launching new fund structures to capture retail inflows,” the survey said.
On the whole, institutional investors, have also “continued to see value and remain invested in alternative funds for diversification, risk mitigation and maximization of returns,” the survey found.
In addition, with respect to environmental, social and corporate governance investing, about one-fourth of investors surveyed declined to invest in a manager due to their “inadequate” ESG policies. In response to increased investor pressure on ESG matters, 57% of managers are changing their approach by developing corporate ESG policies and 53% are “implementing governance structures and embedding ESG into their investment decisions,” the news release said.
“The asset management industry is facing a multitude of headwinds, and managers are finding themselves shifting and modernizing, both in terms of internal processes and front-office decision-making,” said Natalie Deak Jaros, EY’s global hedge fund co-leader and Americas wealth and asset management co-leader, in the release.