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Alternative Assets Are Going Mainstream

February 8th, 2019

Alternative investments are going mainstream, at least with institutional investors; 80% of them have allocated funds to at least one asset class that's historically been considered an alternative.

Discussing a report conducted by Preqin and SEI, ValueWalk says the interest by institutional investors is leading to “increasingly diverse and complicated portfolio holdings" for many of them. The growth of alternatives among these investors -- “a growing stream of capital," as it is described -- has "flooded the sector." So broadly has the sector been embraced, that SEI says, "the ‘alternatives’ moniker hardly seems appropriate.”

Among the various classes, private equity is favored by almost 95% of the investors, ranking it well ahead of real estate (83%) and hedge funds (71%). Interestingly, though private debt represents only a small 2.5% share of an organization's allocations on average, at 69%, the percentage of institutions invested in the asset class is almost as high as in hedge funds.

That reflects what a forthcoming report from SEI and Preqin indicates: Institutional interest in private debt is growing. According to an account in HedgeWeek, investors allocated almost $120 billion into private debt funds in 2017. That represents a 20% increase on the $100 billion in each of 2015 and 2016. Still small compared to the $3.11 trillion in hedge funds, private debt tripled in AUM in the decade since 2008 and is now at $667 billion. However, SEI says 57% of the surveyed investors see the adoption of data analytics increasing the number participating in private debt.

Managers, notes the HedgeWeek account, are more dubious: "Analytics might be good for analyzing credit scores, but managers note they are of limited utility when evaluating the nature or behavior/culture of the borrower."

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