Alternative Investors Not Scared Of Regulations, But Have Concerns - Research Survey

Tom Burroughes

23 August 2013

A survey of investors in alternative asset areas such as hedge funds, infrastructure and private equity showed that they don’t expect to boost or cut allocations as a result of new regulations from the European Union, US and other jurisdictions.

There have been a flurry of new rules, such as the EU’s Alternative Investment Fund Managers Directive, which tighten reporting requirements and arguably increase costs of running alternative investment pools, leading to fears that money might leave the sector.

However, , the research firm, said that its recent poll of 450 investors, which manage a combined $11.7 trillion in assets and have a total of over $750 billion invested in alternatives, are neither running scared of regulations or entirely sanguine.

More than 80 per cent of investors interviewed in each asset class expect to commit the same or more capital to their respective asset class in the next 12 months compared to the last 12 months.

“This strong investor confidence in the industry is encouraging news for alternative asset fund managers looking to raise capital for their vehicles and for the sector as a whole,” the organisation said. (Preqin tracks over 7,800 active alternative asset investors globally.)

Most of both real estate (54 per cent) and infrastructure (59 per cent) investors are below their target allocations to the asset class, with 45 per cent of private equity and 41 per cent of hedge fund investors also under-allocated. This demonstrates the potential for significant growth in the next 12 months and in the longer term, Preqin said.

Most investors across private equity, hedge funds, real estate and infrastructure feel that the performance of their investments has either met or exceeded expectations, the report continued. The proportion of investors that believe their private equity fund investments have exceeded their expectations has reached its highest level yet at 18 per cent, an increase from June 2012 when just 9 per cent of investors had the same sentiment.

Falling short

More negatively, some 26 per cent and 25 per cent of hedge fund and real estate investors respectively feel their investments in these asset classes have fallen short of expectations, it said.

Regulation is a key issue facing investors in alternative assets, interviews found. Private equity investors most strongly believe that they are not beneficial to their industry, with 41 per cent of respondents stating so, and only 19 per cent believing they are beneficial to the industry.

Some 35 per cent of hedge fund investors view recent regulations as beneficial to their industry and 22 per cent view them as not beneficial.

On the topic of fund terms and conditions, over half of investors interviewed in each asset class feel that fund managers’ and investors’ interests are properly aligned. A significant 48 per cent of infrastructure investors either disagreed or strongly disagreed that there was alignment of interests, showing a greater level of dissatisfaction with terms in this asset class than investors in other alternatives.

Investors across all alternative asset classes cited management fees as the area where alignment of interests most needs to be improved; the highest proportion of investors naming it was in infrastructure, at 76 per cent.