Alternative assets fund managers hold a record USD7.4 trillion in combined assets under management (AUM) in 2015, up from USD6.9 trillion a year before, according to Preqin’s 2016 Global Alternatives Reports.
The private capital industry in particular has grown over the past year, as almost every constituent asset class saw its AUM increase. The industry as a whole added USD193 billion in AUM through H1 2015, more than the USD149 billion growth seen in the whole of 2014. The aggregate value of the portfolios of assets held by private capital fund managers is continuing to rise as GPs put more capital to work.
Hedge funds saw a challenging year in 2015, but combined assets under management grew from USD3.0 trillion to USD3.2 trillion despite performance concerns. Total hedge fund AUM grew by 13.3 per cent over 2014 as funds added USD355 billion in total assets; this rate of growth halved in 2015 with just USD178 billion worth of assets added, an increase of 5.9 per cent.
According to the reports: private equity funds distributed a record USD475 billion back to investors in 2014, and returned a further USD189 billion in H1 2015. Buyout and venture capital funds, meanwhile, raised a combined USD199 billion in 2015. Eighty-eight per cent of investors expect to commit more or the same amount of capital to private equity in 2016 as in 2015.
The biggest challenge facing investors in 2016 is asset valuation, cited by 70 per cent of survey respondents.
The Hedge fund industry saw USD71.5 billion added through fresh capital inflows in 2015. These gains were made entirely in H1, as H2 saw a net industry outflow of USD4.8 billion.
Hedge funds had a disappointing year of performance with the Preqin All-Strategies Hedge Fund benchmark returning 2.02 per cent, down from the 4.65 per cent gains made in 2014.
Forty-four per cent of fund managers believe their performance objectives were not met in 2015, and 33 per cent of investors saw below-expected performance on their investments.
Private real estate funds have an average rate of return of 16 per cent in the three years to June 2015, similar to higher-risk buyout and venture capital strategies.
Real estate funds made record distributions of USD187 billion in 2014, and returned a further USD103 billion to investors in H1 2015.
Eighty-nine per cent of investors said that their real estate investments either met or exceeded their expectations in 2015, with 82 per cent expecting to increase or maintain their allocation to the asset class.
Fifty-two percent of infrastructure fund managers cited finding attractive investment opportunities as their biggest challenge in 2016.
Valuations and deal flow were also cited by the largest proportion of investors (38 per cent) as key concerns over the year ahead.
Capital is increasingly becoming concentrated among fewer fund managers as investors seek proven experience. Over half (52 per cent) of capital raised in 2015 was secured by the six largest funds closed.
“The private capital industry has continued to show healthy growth over the past year, and is now worth over four trillion dollars,” says Mark O’Hare, chief executive of Preqin. “This has been fuelled by a rise in dry powder levels, following another strong year for fundraising, and an increase in the unrealized value of portfolio assets. This is not without its concerns, though; the fundraising market is more competitive than ever and dry powder levels continue to increase and put pressure on finding attractive investment opportunities.
“The hedge fund industry has not enjoyed the same gains made in 2013 and 2014, although it has nevertheless grown to well over three trillion dollars. While the prolonged period of weak returns has taken its toll, returns are also difficult to find in other asset classes. 2016 looks set to be a challenging year, but the industry still has the potential for significant further growth.”