Data research company Preqin has deep-dived into the future to take a look at what the global alternative assets industry (meaning private capital plus hedge funds) is likely to look like in 2023.
The Preqin study titled ‘The Future of Alternatives’, predicts that the alternative assets industry will grow to reach $14 trillion in size by 2023 and 34,000 fund management firms will be active globally (+21% vs. 2018). This is based on results from surveys with 300 fund managers and more than 120 institutional investors, as well as our their own proprietary data.
The report outlines the drivers behind this growth as:
- Alternatives’ track record and enduring ability to deliver superior risk-adjusted returns to its investors;
- Investors’ need for alpha, the aforementioned ability to find this in private capital vs. the difficulty of finding it in public markets, leading to widespread increases in allocations to alternatives;
- The steady decline in the number of listed stocks, as private capital is increasingly able to fund businesses through more of their lifecycle;
- The growing opportunities in private debt as traditional lenders decline;
- The massive opportunity in emerging markets
The reasons for this forecast? The Preqin study highlights that technology – especially blockchain – will facilitate private networks and help investors and fund managers transact and monitor their portfolios, and reduce costs vs. public markets. Investors increasingly want more control and influence over their investments, and the ability to add value; private capital provides this. Further emerging markets growth will be a ‘double whammy’ of GDP growth + higher penetration of alternative assets. In addition, the study found that the mass affluent around the world would like to increase their investment in private capital if only the structures and vehicles (and regulation) permitted; technology will help.
One factor in the success of the alternative assets industry in the past has been its ability to respond to change and evolve to meet new challenges. The study predicts that the next five years will likely see more rapid and significant changes than ever before, notable among which will be: routes to market; transparency & monitoring; ESG; and emerging markets.