Who Will Be King of the Alternative Asset Class?

Hedge funds have long dominated the alternative asset class, both in terms of assets under management(AUM), and also in sheer numbers of firms. As reported by Prequin, hedge fund AUM reached a record high of $3.61 trillion through the first half of 2018.

However, again according to Prequin, the alternate asset universe was around $8.8 trillion at the end of 2017 and, although the hedge fund industry has a generous slice of the piewho has the rest?

The Alternative Asset Pie

Alternative assets are broadly defined as any investment that is not a stock, bond, or certificate. The primary alternative assets are hedge funds, private equity, venture capital, real estate, infrastructure, private debt and natural resources.

Arguably, hedge funds lead the list in terms of assets under management. However, private equity firms are challenging the hedge fund industry for its crown. Private equity assets under management currently stand at $3.1 trillion, an uncomfortably close second place. The alternative investment universe is expected to reach $14 trillion by the end of 2023.

If alternative assets under management do reach $14 trillion by 2023, which asset class is likely to capture the $5.2 trillion up for grabs?

What Institutional Investors Are Saying

Prequin’s Investor Outlook: Alternative Assets H1 2018 suggests that private equity firms may hold an advantage. For example, institutional investors’ general perception of private equity is 3 times more positive than is their perception of hedge funds. Moreover, institutional investors’ long term plans signal a fading enthusiasm for hedge fund investment. One in four report they plan to reduce hedge fund investment, while one in five are entertaining an increase in investment.

In sharp contrast, only one in twenty-five institutional investors plan to reduce their private equity investment, while one two plan to increase their investment in private equity.

But Wait…

Pitchbook, viewed by many as the doyen of private equity, casts doubt on the ability of private equity to dethrone hedge funds. In their Global PE & VC Fund Performance Report, Pitchbook acknowledges the difficulties private equity firms have had in beating the markets over the last decade, with only 2013 being a year in which at least on-half of private equity firms beat the market…and just barely, at that.

What about Hedge Fund Jobs?

Hedge fund job seekers should focus on the positive. If the next 5 years sees an inflow of capital in the $5 trillion range, roughly $1 trillion annually, the hedge fund industry is certainly going to see its share of that inflow.

How much of that flows to hedge funds is up for debate. However, the industry’s closest competitor, private equity, isn’t as well poised to claw in the lion’s share as some would like us to believe. Even if projections are correct, hedge fund assets under management will grow to $4.7 trillion by 2023. This level of growth, even in the most dismal of scenarios, bodes well for growth in hedge fund jobs. If the current crop of hedge fund professionals can improve performance levels, the future will be even brighter.

Bookmark and Share

Leave a Comment

*
To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Click to hear an audio file of the anti-spam word

Previous post:

Next post:

Real Time Web Analytics