Alternative assets fund managers, currently holding more than $13tn under AUM, continuing yearly growth since 2010, are expected to hold $23.21tn by the end of 2026.
This is according to Preqin, the global leader in alternative assets data, tools, and insights.
Preqin’s 2022 Global Alternatives Reports – the most complete and in-depth annual reviews of private equity, venture capital, private debt, hedge funds, real estate, infrastructure, and natural resources markets. 2021 has been a pivotal year in the history of alternative assets.
As governments and economies continued to feel the effects of the COVID-19 pandemic, private capital and hedge funds investments surged ahead.
Fundraising, investments, and performance were all buoyant, with private equity, venture capital, private debt, infrastructure, and natural resources performing particularly well.
After demonstrating their resilience in 2020, alternatives showed their ability to adapt and prosper in 2021’s fast-changing environment. Due to expected lower returns from traditional assets, particularly fixed income, institutional investors; including pension funds, endowments and family offices, have been increasingly keen to invest in alternative assets.
Preqin reports similar growth rates the largest regions
Preqin data reports similar alternatives markets growth rates in the three largest regions.
North America is expected to grow the fastest – with a predicted CAGR of 15.4% between 2021 and 2026 – closely followed by Asia-Pacific (15.0%) and Europe (14.0%).
In North America, private equity, private debt, and real estate are all estimated to hold more than $1trillion of alternate assets in 2026 each, with the largest asset class, private equity, expected to account for 67% of private capital alternate assets.
In Asia-Pacific, private equity will be even more dominant than it is now, with its $1.87trillion of alternative assets (AUM) accounting for 83% of the private capital total in 2026; real estate, with alternate assets of $191billion, is expected to be a distant second.
Preqin institutional investment plan
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% 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%) expect to invest the same amount in alternatives over the next 12 months, and almost a third (32%) plan to invest more.
Private equity & venture capital in the Lead, while ESG-focused investments accelerate according to Preqin
Private equity & venture capital (PEVC) is by far the largest asset class, with AUM estimated to be in excess of $11tn as of December 2026, accounting for almost half (49%) of AUM.
Private debt is expected to be the fastest-growing alternative asset class over the next five years, with a compound annual growth rate of 17.4%, taking AUM to an estimated $2.69tn 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.
In Asia-Pacific, a total of $152bn worth of deals was completed in the first three quarters of 2021, 28% more than full-year 2020 and on its way to surpassing 2018’s record of $152bn.
Asia-Pacific is an increasingly attractive destination for venture capital, despite comparatively slow GDP growth and regulatory uncertainties.
Preqin reports slow progress toward ‘Retailization’
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 retailization – has been slow.
Preqin expects retail investors to become a growing force in AUM 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.”