3cfff0f2 1cfe 4a1e 91ed 7c5ce06f11d6 Preqin Investor Outlook Alternative Assets H2 2021

Preqin Investor Outlook:
Alternative Assets
H2 2021
User License for Udita Mehta

The Ideaz Factory [udita@theideazfactory.com]
Preqin Investor Outlook: Alternative Assets H2 2021
Contents
3 Foreword 17 Hedge Funds: Interest Cools as Markets

Stabilize
4 Outlook Remains Bright for Alternative Assets
20 Real Estate: Interest Returns Post-Pandemic
8 ESG: Companies’ Capabilities Increase
23 Infrastructure: Interest Rates and Inflation a
11 Private Equity: Emerging Markets Are in Favor Concern
14 Private Debt: Demand Remains Resilient 26 Natural Resources: Investors Reap Their
Rewards as Performance Picks up
Acknowledgements
Executive Editors Milly Rochow
Cameron Joyce Logan Scales
Laura Messchendorp Tim Short
In-House Contributors Data Support

Cat Hall Logan Chappell
Nicole Lee Zachary Finkelstein
Dave Lowery Rich Gifford
Charlotte Mullen Erin Hughes
Grant Murgatroyd Chase Mahar
Jordan Poulter Sebastian Vallone
Important Notice, Please Read

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While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such infor-
mation wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Investor Outlook:
Alternative Assets H2 2021 are accurate, reliable, up to date, or complete.
Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or
omissions within Preqin Investor Outlook: Alternative Assets H2 2021 or for any expense or other loss alleged to have arisen in any way with a reader’s use
of this publication.
Data contained within the Preqin Investor Outlook: Alternative Assets H2 2021 was sourced from Preqin Pro, unless otherwise stated, as of January 2021
and represents the most up-to-date data as of that date.
2 User License for Udita Mehta

Foreword
We are delighted to present Preqin’s H2 2021 Investor (just 3% of respondents expect ESG to become less
Outlook, based on our exclusive, comprehensive important), 41% said that a lack of information or
survey of institutional investors in alternative assets. data was a challenge.
Overall, investors say investments have either met
or exceeded expectations over the past 12 months Even during turbulent times, alternative assets
and will, on balance, perform better over the next have continued to grow and evolve. Over the past 12
12 months. A significant proportion are looking to months we have continued to invest to deliver you –
increase commitments, particularly in infrastructure our network of over 120k global alternative assets
(51%), private equity (43%), venture capital (43%), and professionals – better data, tools, and insights to
private debt (39%). help you discover new opportunities, benchmark your
performance, and find top-tier industry partners.
Alternative investments performed well through This year alone, we:
the challenges of the pandemic and the markets • Launched ESG Solutions to provide you with
functioned effectively. While near-term returns in critical visibility of GP-LP environmental, social,
private markets are only indicative of performance, and governance factors at a firm, portfolio, and
strong returns – global venture capital funds asset level;
generated a one-year horizon IRR of 31.8% in 2020, • Launched Company Intelligence, offering
while buyout funds were up 24.7% - have pushed comprehensive and timely data – including
longer-term performance higher. financials, transactions history, and valuations –
on sponsor-backed companies;
Concerns about the exit environment have receded • Improved ease of access to our exclusive
over the past year. Equity markets have been content, from all platforms and locations,
extremely receptive to IPOs, corporates have through our refreshed mobile application and
embarked on an M&A bonanza, and the special APIs;
purpose acquisition company (SPAC) phenomenon • Achieved major data growth across our platform,
has created a new pool of potential buyers of private with our investor profiles up 20% to almost 20k,
companies. The proportion of investors flagging the our fund profiles up 12% to 117k, and our GP
exit environment as a key challenge has fallen from coverage up 10% to 43k profiles.
45% in last year’s survey to only 16% this year.
As you have come to expect from Preqin, The Home
COVID and extreme weather events have increased of Alternatives®, we will continue to invest heavily to
the focus on environmental factors. ESG, already ensure you have the most comprehensive view of the
a hot topic in alternatives, has moved even further alternative assets industry.
up the agenda with ambition being translated
into action. More than three-quarters of survey Thank you for your ongoing support, and happy
respondents cited an increase in their ESG interests investing.
or capabilities over the past 12 months, with half
of these saying the change had been “significant.”
While there are only a few dissenting voices on ESG
User License for Udita Mehta 3

Outlook Remains Bright for

Alternative Assets
Preqin surveyed 231 investors in June 2021 and of 31.8% during 2020. While these stellar returns are
the breakdown of respondents by investor type, less likely to be sustained going forward, the outlook
size, and location was broadly representative of the for the asset class is positive. Digital innovation
alternatives universe. Over three-quarters (76%) of trends are accelerating.
institutional investors tracked by Preqin now invest in
at least one alternative asset class, and 40% invest in Private debt investors have cooled their interest in
at least three. distressed debt and special situations compared to
last year as opportunities proved harder to come by
The alternatives market continues to thrive with than expected. Things are also looking up for the
2021 shaping up to be a strong year. Private capital real estate sector following an extremely challenging
assets under management (AUM) stood at $8.56tn year in 2020. A total of 31% of investors surveyed
as of December 2020, and we forecast this to grow expect to deploy more capital to the asset class over
at an annualized rate of 16.7% to reach $18.51tn by the coming 12 months, compared with 23% a year
2025. Investor sentiment supports this, with 90% prior. Concerns over the exit environment in the
of private equity investors looking to increase or infrastructure space have also abated somewhat,
maintain their level of capital commitments, followed although with the potential for inflationary pressure
by 86% of infrastructure investors. Expectations for is now top of mind.
private equity returns are particularly strong, with
42% of survey respondents anticipating even better The financial market turmoil in early 2020 cast a
performance from the asset class in the next 12 shadow over exit opportunities. However, these
months. The positive performance has been reflected concerns quickly dissipated as public equity markets
in fundraising figures, with $459bn raised by private rebounded strongly. A total of 45% of survey
equity funds in H1 2021. respondents had flagged the exit environment as a
key challenge in last year’s survey, compared with
Since the outbreak of the pandemic, venture-backed only 16% this year. Despite the regulatory clampdown
technology companies have performed particularly from the SEC in April, SPACs are sitting on $129bn
well. Survey respondents agreed, with 34% stating of capital yet to be deployed. This means competition
performance has exceeded their expectations over for deals is higher than ever and should help
the past 12 months – higher than any other asset maintain the strong exit environment going forward.
class. Global venture capital funds generated an IRR
Fig. 1.1: Institutional Investors by Number of Alternative Asset Classes Invested In
None One Two Three Four Five Six
24% 23% 14% 12% 10% 9% 9%
Source: Preqin Pro

Fig. 1.2: Institutional Investors Allocating to Each Alternative Asset Class
Private Private Hedge Real Natural

Infrastructure
Equity Debt Funds Estate Resources
72% 35% 44% 65% 36% 37%

Source: Preqin Pro
Fig. 1.3: Institutional Investors by Target Allocation to Each Asset Class (As a % of Total Assets)
Private Private Hedge

Equity Debt Funds
13.8% 6.2% 12.1%

Average target Average target Average target
allocation allocation allocation
Real Natural
Infrastructure
Estate Resources
10.1% 5.3% 4.7%

Average target
Average target Average target
allocation
allocation allocation
Less than 5% 5 to 9.9% 10 to 19.9% 20% or More

Source: Preqin Pro
Fig. 1.4: Investor Views on the Performance of Their Investment Portfolios over the Past 12 Months
100%
90%
Proportion of Respondents
80%
70%
60%
50%
40%
30%
20%
10%
0%
Private Equity Venture Capital Private Debt Hedge Funds Real Estate Infrastructure Natural
Resources
Exceeded Expectations Met Expectations Fallen Short of Expectations
Source: Preqin Investor Survey, June 2021

Fig. 1.5: Investors' Expectations for the Performance of Their Investment Portfolios in the Next 12 Months
Compared with the Previous 12 Months
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Resources
Will Perform Better Will Perform About the Same Will Perform Worse
Fig. 1.6: Investors' Expected Capital Commitments to Each Asset Class in the Next 12 Months Compared
with the Previous 12 Months
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Resources
More Capital Same Amount of Capital Less Capital
Fig. 1.7: Investor Views on Valuations of Alternative Asset Classes
60%
50%
40%
30%
20%
10%
0%
Undervalued, Undervalued, Some Fairly Valued Overvalued, Some Overvalued,
Considerable Room Room for Price Rises Room for Price Considerable Room for
for Price Rises Reduction Price Reduction
Private Equity Venture Capital Private Debt Real Estate Infrastructure Natural Resources

Fig. 1.8: Investor Views on Where We Are in the Current Market Cycle
100%
80%
60%
40%
20%
0%
Macroeconomic Cycle Equity Market Cycle Real Estate Market Debt Market Cycle Commodities Market
Cycle Cycle
Start of Recovery Rising Market Approaching the Peak Peak of Market
Starting to Decline Approaching the Bottom Bottom of Market

ESG: Companies’ Capabilities

Increase
Regulation could be the driver behind widespread adoption of ESG

policies, but lack of data remains an issue
On 29 July 2021, the world marked Earth Overshoot Real political change was seen as President Biden
Day.1 This occurs when humanity’s demand for took office in the US and almost immediately
ecological resources and services has exceeded what recommitted to the Paris Agreement. European
the Earth can regenerate that year. Despite a brief countries rolled out environmental protection
reprieve in 2020, when the global pandemic and the programs ahead of the 2020 UN Climate Change
resulting drop-off in global travel, with industrial Conference (COP26), now set to take place in
activity, ensured that Overshoot Day was not reached November 2021 in Glasgow.
until the 22 August, the day is being marked earlier
and earlier each year. Preqin’s June 2021 Investor Outlook survey has
tracked how LPs’ views on ESG have changed
The pandemic forced many people to look more over time. When describing the change in their
closely at biodiversity and the relationship between organizations’ ESG interests or capabilities over
humans and the environment. Despite (or maybe the past 12 months, 76% of respondents said they
because of) global lockdowns, media coverage had increased (Fig. 2.3). Half of them said this
of social unrest, sustainability, and corporate increase was significant, and the other half said it
governance has increased. was modest, with a further 22% saying they saw no
change. Only 3% of investors described a modest
1
https://www.overshootday.org/
Fig. 2.1: Investor Views on Why Fund Managers Establish ESG Policies
90%
80%
70%
Proportion of
Respondents
60%
50%
40%
30%
20%
10%
0%
Competition with
Responsibility
Investor Demand
Standards/Best
Pressure
Investment Risk
Outperformance
Regulatory
Moral Imperative
Political
Fund Managers
Demands
Fiduciary
Practices
Industry

or significant decrease, suggesting the industry is The importance of conclusive data, and the lack
making big moves toward ESG. thereof, continues to make itself known throughout
the industry. When asked why ESG considerations
In the alternatives industry, the first step in many may be of low importance, 41% of respondents said
companies’ ESG journeys starts with formulating this was due to a lack of information or data (Fig.
an ESG policy. Fund managers are mindful of what 2.2).
investors expect from them, and 79% of respondents
stated that fund managers establish ESG policies Whatever the reasons for taking ESG factors into
to meet investor demand (Fig. 2.1). Other reasons consideration, there is no shortage of relevant
include to meet industry standards or best practices issues. The environmental aspects of ESG receive
(66%), which ties in with 53% of respondents who the most attention, with issues related to the climate
said that regulatory or legal requirements would crisis seen as more relevant than those related
encourage them to consider ESG factors. Many to diversity & inclusion, tech antitrust, politics, or
already do, as a matter of best practice and risk pandemic-related issues.
management.
Fig. 2.2: Investor Views on Why ESG Issues Are of Low or No Importance in Investment Decisions
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Lack of Insufficient No Added Lack of Inability to Not Other Market
Information/ Knowledge of Value Demand Integrate ESG Relevant Practices
Data How to Consider Data into Require a Focus
ESG Quantitative on Short-Term
Models Performance
Fig. 2.3: Investor Views on the Change in Interest in/Demand for Their Organizations' ESG Capabilities or
Strategies over the Past 12 Months
40%
35%
30%
25%
20%
15%
10%
5%
0%
Significant Increase Modest Increase No Change Modest Decrease Significant Decrease

Plastic, waste, and pollution, which contribute although 23% plan to set one up within the next year.
to the ongoing climate crisis, is one of the most Although lagging behind other asset classes, in 2019
relevant issues for ESG investing, according to 65% only 12% of natural resources investors had a policy
of respondents. Other topics that rank highly among in place, and 6% were planning one, showing the
respondents are water management (57%), and intent is there.
the need for board-level cybersecurity experience
(40%). Over half (51%) of respondents cited natural In all likelihood, next year, Earth Overshoot day will
disasters as a key consideration; given this includes occur even earlier in the calendar than this year.
pandemics, it’s understandable why. As fund managers expand their ESG offerings and
policies in response to investor demand, real change
Respondents feel differently about ESG across each will have to occur for climate impacts to be fully
asset class. More than half (52%) of private equity taken into account by businesses. And while the
LPs had ESG investment policies in place, with 24% climate crisis remains high on the agenda, social
planning to implement a policy within the next 12 and governance factors may not be getting as much
months (Fig. 2.5). On the other hand, only 30% of attention as they deserve.
natural resources firms already had policies in place,
Fig. 2.4: Investor Views on Issues Most Relevant to ESG Investing in 2022
Concerns over Founder CEOs with Voting Control

Disinformation
Concerns over Abuse of Market Position
Pay Ratio of CEO to Median Employee
Domestic Politics
Stakeholder Capitalism Replacing Shareholder Capitalism
Adjusting to Long-Term Risks Associated with COVID-19
Mental and Physical Health of Labor
Economic Recovery of COVID-19
International Politics
Female Inclusion in Leadership
Diversity & Inclusion in Leadership
Cybersecurity
Natural Disasters
Water Management
Plastic, Waste, and Pollution
0% 10% 20% 30% 40% 50% 60% 70%
Fig. 2.5: Investors with ESG Investment Policies in Place by Asset Class
60%
50%
Proportion of
Respondents
40%
30%
20%
10%
0%
Private
Private Debt
Hedge Funds
Real Estate
Equities
Venture
Infrastructure
Resources
Fixed Income
Capital
Equity
Natural
Yes No, But Plan to within Next 12 Months No, No Plans Unsure

Private Equity: Emerging
Markets Are in Favor
Fundamentals remain as strong as ever for private equity
Investor appetite for private equity remains strong. 2020 survey. This may reflect the fact that higher
A total of 90% of survey respondents plan to allocate valuations are justified to some extent, given lower
the same or a larger amount of capital in the next 12 discount rates and the improved prospects for
months term compared with the previous year. This venture-backed technology companies in particular.
comes off the back of the strongest H1 on record
for PEVC fundraising, with $459bn secured in the The US remains the most attractive investment
first half of 2021. Back in early 2020 investors were destination within developed markets according to
concerned by the impact of the market turmoil on the investors – although interest has waned slightly in
exit environment, but this has since lessened. The favor of other markets. The UK in particular has
portion of respondents concerned about exits spiked steadily climbed on investors' radars. Brexit-related
to 74% in our 2020 June survey from 38% in June uncertainty has declined somewhat following the
2019, before dropping considerably to 28% in June UK’s exit from the eurozone at the start of 2021.
2021. Together with the easing of COVID-19 restrictions,
this has boosted investor confidence and deal activity
Following the strong recovery in public and private has picked up. UK public equity valuations also
markets over the past year, 74% of investors agree remain comparatively cheaper than European and
that prices for private equity deals are higher US markets, making it a rich target environment for
compared to 12 months ago. However, the portion public-to-private transactions.
of investors concerned about asset valuations
has dipped slightly, to 64% from 82% in the June
Fig. 3.1: Investors' Expected Capital Commitments to Private Equity Funds in the Next 12 Months Compared
to the Previous 12 Months, 2017 - 2021
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Jun-17 Jun-18 Jun-19 Jun-20 Jun-21
Source: Preqin Investor Surveys, 2017 - 2021

Investor appetite for emerging market exposure is appear to have dampened investor interest in the
increasing on the margin; however, appetite varies region – it was hit disproportionately hard by the
considerably between regions. Appetite for exposure Pandemic.
to China has increased considerably since the same
time last year (Fig. 3.3). This was aided, in part, by Growth Set to Continue
how well Beijing navigated the pandemic and has For the time being, long-term inflationary
sustained economic growth with the help of stimulus expectations remain low and economic growth
measures. China managed to generate GDP growth appears set to continue its rebound post-pandemic
of 2% in 2020, despite much of the world being in a – positive conditions for private equity investing. The
heavy recession. pandemic has incepted major change in consumer
behavior which is improving the prospects for
Southeast Asia is also gaining more attention from technology companies on the right side of that
investors, as the region's young and tech-savvy change. And with the private equity industry driving
population boosts the prospects for venture capital- digital innovation in portfolio companies, investors
backed technology companies. In South America, are well positioned to reap the rewards.
conversely, mounting political and economic risks
Fig. 3.2: Private Equity Investor Views on the Key Challenges for Return Generation in the Next 12 Months,
2019 - 2021
90%
80%
70%
Proportion of
Respondents
60%
50%
40%
30%
20%
10%
0% Interest
Stock Market
Competition
Environment
Deal Flow
Geopolitical
Regulation
Valuations
Currency
Commodity
Volatility
Landscape
Rising
for Assets
Market
Rates
Volatility
Market
Volatility
Asset
Exit
Jun-19 Jun-20 Jun-21
Source: Preqin Investor Surveys, June 2019 - 2021
Fig. 3.3: Investor Views on Emerging Markets Presenting the Best Opportunities in Private Equity,
2020 vs. 2021
70%
60%
50%
Proportion of
Respondents
40%
30%
20%
10%
0%
China
America
America
Africa
Central &
India
Southeast
Middle
Central
Eastern
East
Europe
South
Asia
Jun-20 Jun-21

Fig. 3.4: Investor Views on Fund Types Presenting the Best Opportunities in Private Equity, 2019 - 2021
90%
80%
70%
Proportion of
Respondents
60%
50%
40%
30%
20%
10%
0%
Secondaries
Other
Mega Buyout
Mid-Market
Growth
Fund of
Early-Stage
Late-Stage
Funds
Venture
Small to
Venture
Capital
Large to
Buyout
Capital
Jun-19 Jun-20 Jul-21
Fig. 3.5: Investor Views on Developed Markets Presenting the Best Opportunities in Private Equity,
2019 - 2021
100%
90%
80%
Proportion of
Respondents
70%
60%
50%
40%
30%
20%
10%
0%
Nordic
Japan
US
Canada
New Zealand
(Excl. UK)
UK
Korea
South
Singapore
Western
Australia &
Europe
Jun-19 Jun-20 Jul-21

Private Debt: Demand

Remains Resilient
Negative real treasury yields drive investors to private debt
The portion of investors seeking to allocate more into private debt as they reach for yield. Looked at
capital to private debt in the next year compared another way, 10-year Treasury yields now offer a
to the last has declined on the margin (Fig. 4.1). negative yield in real terms and one that has been
However, overall investor appetite for the asset sinking deeper into negative territory in recent
class remains strong, given that only 19% of survey months. US 10-year Treasury bonds currently yield
respondents are seeking to deploy less capital in 1.22% compared to a 2.36% breakeven inflation rate,
the space over the next year. This is lower than 2020 implying a negative yield of over 1%. This is likely
(22%), but higher than 2019 (12%). to further strengthen the incentive for investors to
rotate into higher-yielding private debt.
While accommodative monetary policy has helped
ensure low US Treasury yields, credit spreads in the Back in early 2020, investor appetite for distressed
corporate bond market have also remained tight as debt and special situations strategies spiked in the
a result of the Fed’s actions. Higher-risk CCC-rated wake of the pandemic-induced turmoil (Fig. 4.3).
bond spreads remain at 6.6%1, materially lower The expectation was that an increased number of
than where they were before the outbreak of the companies under financial distress would create
pandemic. This is one of the main drivers behind the a surge in opportunities for distressed debt funds
push that institutional investors have been making to take advantage of. However, the flood of liquidity
1
https://fred.stlouisfed.org/series/BAMLH0A3HYC
Fig. 4.1: Investors' Expected Capital Commitments to Private Debt Funds in the Next 12 Months Compared to
the Previous 12 Months, 2017 - 2021
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

provided by monetary policy responses essentially 42% at the same time last year.
extinguished any fires that had been building. As
a result, among investors surveyed by Preqin, We expect investor appetite for private debt to remain
the proportion favoring the strategy has dropped robust. Although many are concerned about the
dramatically to 26% in June 2021, down from 69% in potential for higher long-term bond yields on the
2020. It's been a similar story with special situations back of rising inflation, there is limited evidence of
strategies, with interest spiking to 65% in 2020 before this scenario playing out yet. For the time being, the
retreating to 43% this year. higher yields available on private debt instruments
remain attractive compared to comparable fixed-
For now, direct lending strategies remain the most income securities and typically offer lower duration
attractive strategy for investors. More than half risk.
(54%) expect direct lending funds to offer the best
investment opportunities over the next year, up from
Fig. 4.2: Private Debt Investor Views on the Key Challenges for Return Generation in the Next 12 Months
60%
50%
40%
30%
20%
10%
0%
Opportunities
Regulation
Geopolitical
Currency
Commodity
Volatility
Landscape
Competition
Market
for Lending
Volatility
Market
Fig. 4.3: Investor Views on Fund Types Presenting the Best Opportunities in Private Debt, 2019 - 2021
80%
70%
60%
50%
40%
30%
20%
10%
0%
Distressed
Lending
Other
Mezzanine
Fund of
Venture
Situations
Funds
Direct
Special
Debt
Debt

Fig. 4.4: Investor Views on Developed Markets Presenting the Best Opportunities in Private Debt,
2019 - 2021
90%
80%
70%
Proportion of
Respondents
60%
50%
40%
30%
20%
10%
0%
Nordic
US
Canada
Japan
New Zealand
(Excl. UK)
UK
Korea
South
Singapore
Western
Australia &
Europe
Fig. 4.5: Investor Views on Emerging Markets Presenting the Best Opportunities in Private Debt,
2020 vs. 2021
50%
45%
Proportion of
Respondents
40%
35%
30%
25%
20%
15%
10%
5%
0%
America
America
China
Africa
Central &
Southeast
India
Middle
Central
Eastern
East
Europe
South
Asia
Jun-20 Jun-21

Hedge Funds: Interest Cools as
Markets Stabilize
Strong performance of risk assets could lead to a dip hedge fund

allocations
Hedge funds can prove an effective diversifier in However, the strong performance of risk assets since
institutional investment portfolios, given their focus appears to have shifted investor preferences once
on generating attractive risk-adjusted returns more, as asset classes with higher levels of market
regardless of the direction of the market. In fact, 59% risk become more attractive. With hedge funds
of survey respondents deem risk management an therefore appearing comparatively less attractive,
important objective when investing in hedge funds, only 23% of respondents in the June 2021 survey are
with only 7% taking the opposing view (Fig. 5.4). expecting to increase their exposure to hedge funds.
Investor enthusiasm for hedge fund strategies spiked Within the asset class, investors are demonstrating
last year, with 44% of respondents to our June 2020 relatively strong appetite for multi-strategy funds
survey planning to allocate additional capital, up and cryptocurrency/blockchain strategies (Fig.
from 23% in June 2019 (Fig. 5.2). This increase was 5.3). A total of 43% and 39% of respondents expect
likely a result of the financial market volatility at to increase their exposure to these strategies,
the time, with investors turning to hedge funds to respectively, in the next 12 months. In contrast,
manage market risk and limit drawdowns. During lifecycle strategies appear to be falling out of favor.
this period, there was considerable uncertainty as Only 12% of respondents expect to increase their
to the financial market impact of the pandemic, exposure to these strategies over the next 12 months,
meaning some investors will have been less willing with 27% planning to decrease exposure.
to take a directional market bet.
Fig. 5.1: Hedge Fund Investor Views on the Key Challenges for Return Generation in the Next 12 Months
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Volatility
Interest
Geopolitical
Currency
Commodity
Volatility
Landscape
Market
Rising
Market
Rates
Volatility
Stock
Market

Investors are also looking less favorably on Hedge fund strategies continue to offer investors a
systematic CTAs. These strategies have not fared source of attractive risk-adjusted return and have
as well in the extreme market volatility since the once again proved their value during a turbulent
outbreak of the pandemic. Discretionary CTAs, in market. While the strong performance of global risk
contrast, were able to perform well, as traders assets in recent months may have curbed the level
identified more compelling opportunities brought of interest in hedge funds for the time being, they are
about by severe market dislocations. likely to remain a core part of institutional portfolios
in the long term.
Investors appear optimistic about the returns that
hedge funds could generate over the next year.
Almost one-third (29%) of respondents expect better
performance, while 49% expect similar performance.
Fig. 5.2: Investors' Expected Capital Commitments to Hedge Funds in the Next 12 Months Compared to the
Previous 12 Months, 2017 - 2021
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Fig. 5.3: Investors' Hedge Fund Allocation Plans for the Next 12 Months by Top-Level Strategy
Cryptocurrency/Blockchain Strategies
Emerging Markets
Early-Lifecycle Hedge Fund*
Credit Strategies
Equity Strategies
Macro Strategies
Fund of Hedge Funds
Discretionary CTAs
Relative Value Strategies
Event Driven Strategies
Systematic CTAs
Multi-Strategy
0% 20% 40% 60% 80% 100%

Increase Exposure Maintain Exposure Decrease Exposure
*Fund launched in first three years of firm inception.

Fig. 5.4: Importance of Objectives to Hedge Fund Investors
Risk Management
Ability to Exploit Market Opportunities
Enhanced Alpha Generation
Decreased Volatility
Absolute Return
Diversification with Non-Correlated Assets
0% 20% 40% 60% 80% 100%

Very Important Important Not Important
Fig. 5.5: Investor Views on Aspects of Hedge Funds
Smaller, Emerging Managers Have No Place in my Portfolio
Most Hedge Funds do a Good Job of Risk Management
When it Comes to Picking Hedge Funds, Brand Name Does Not Matter
We Will Not Be Able to Meet Our Return Objectives without Hedge Funds
System-Generated Portfolio Transparency Is Irrelevant without Manager Access
Monthly Liquidity is Acceptable for Hedge Fund Investments
Hedge Funds Are too Complex to Evaluate Without a Consultant's Help
Hedge Funds Attract the World's Best and Brightest Investment Talent
There Are Too Many Look-Alike Strategies in the Hedge Fund Industry
Operational Strength Is a Hallmark of an Institutional-Quality Hedge Fund
0% 20% 40% 60% 80% 100%

Strongly Agree Agree Neutral Disagree Strongly Disagree

Real Estate: Interest Returns

Post-Pandemic
Potentially higher rates pose risks for real estate investors as mixed
views of market cycle prevail
Things are looking up for real estate after a difficult Real estate suffered a double hit at the start of the
2020. Of investors surveyed by Preqin in June 2021, COVID-19 pandemic. Uncertainty about the future
31% say they are looking to allocate more to the of work made it difficult to predict property usage
asset class over the next 12 months, up from 23% in different real estate sectors. Offices and retail
a year before (Fig. 6.1). Just 22% of investors plan property, for example, were hit hard as people
to allocate less capital than they did in the past 12 worked from home and shopped online. On top of
months, and 46% look to maintain the same amount. that, deals were delayed due to travel restrictions
and the time it took for investors to become
However, some uncertainty remains. In June 2020, comfortable with transacting remotely, which
40% of investors planned to reduce the amount prohibited made due diligence a challenge.
of capital they had allocated to real estate, and a
decline in fundraising and the number of funds However, the low interest rate environment and an
closed in Q1 and Q2 this year would suggest that emerging path out of lockdown has since boosted
investors are still tentative. Aggregate fundraising interest in the asset class. The difficulties posed
dropped to $19bn in Q2 2021, with just 59 funds by the exit environment appear less of a concern
closed. These combined figures are the weakest in at this year than last. Although concerns around asset
least the past five years. valuations have also declined, half of investors
Fig. 6.1: Investors' Expected Capital Commitments to Real Estate Funds in the Next 12 Months Compared to
the Previous 12 Months, 2017 - 2021
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Less Capital Same Amount of Capital More Capital

surveyed by Preqin stated they are still the biggest Investor interest in developed markets has increased.
threat to return generation (Fig. 6.2). Investors are This is a stark turnaround from last year, when
primarily concerned by the prospect of rising interest interest declined across all developed markets, bar
rates and the intense competition for assets. the US and the UK. The UK in particular has seen a
big uptick: 44% of respondents say it presents the
As COVID uncertainty begins to ease, opportunistic best opportunities up from only 29% last year (Fig.
and distressed strategies are losing their appeal; 6.4). Only the Nordics saw a decrease in investor
the largest proportion of investors (46%) feel value- interest, albeit a modest one: 21% of investors
added real estate is presenting the best opportunities surveyed in June 2020 said the region presented the
(Fig. 6.3). Investors are also increasingly looking to best opportunities, but only 18% said the same for
core and core-plus strategies, particularly core- 2021.
plus, which saw a rise from 7% in 2020 to 27% this
year. Overall, it appears that investors are getting In emerging markets, almost the opposite is true.
comfortable with assuming a more risk-on stance in Although China, India, and the Middle East have
the real estate space. all registered an increase in investor interest in
comparison to last year, the other regions (Central
Fig. 6.2: Real Estate Investor Views on the Key Challenges for Return Generation in the Next 12 Months,
2020 vs. 2021
90%
80%
70%
Proportion of
Respondents
60%
50%
40%
30%
20%
10%
0%
Interest
Volatility
Competition
Deal Flow
Regulation
Geopolitical
Environment
Currency
Commodity
Valuations
Volatility
Landscape
Market
Rising
for Assets
Market
Rates
Volatility
Stock
Market
Asset
Exit
Jun-20 Jun-21
Fig. 6.3: Investor Views on Fund Types Presenting the Best Opportunities in Real Estate, 2020 vs. 2021
60%
50%
Proportion of
Respondents
40%
30%
20%
10%
0%
Secondaries
Distressed
Core
Opportunistic
Value Added
Debt
Core-Plus
Fund of Funds
Jun-20 Jun-21

& Eastern Europe, Southeast Asia, South America,

Central America, and Africa) are less favored by
investors than they were a year ago (Fig. 6.5).
Although uncertainty prevails in the real estate

space, investors have adapted and increased demand
for core strategies, suggesting that quality assets
are favored. Although the road out of lockdown is
a bumpy one, investors appear positive about the
future of real estate.
Fig. 6.4: Investor Views on Emerging Markets Presenting the Best Opportunities in Real Estate,
2020 vs. 2021
60%
50%
40%
30%
20%
10%
0%
China
America
America
Africa
Central &
Southeast
India
Middle
Central
Eastern
East
Europe
South
Asia
Jun-20 Jun-21
Fig. 6.5: Investor Views on Developed Markets Presenting the Best Opportunities in Real Estate,
2020 vs. 2021
80%
70%
60%
Proportion of
Respondents
50%
40%
30%
20%
10%
0%
Japan
New Zealand
US
Canada
(Excl. UK)
UK
Nordics
Korea
South
Singapore
Western
Australia &
Europe
Jun-20 Jun-21

Infrastructure: Interest Rates
and Inflation a Concern
Industry activity is picking up as travel resumes, but high interest rates

are concerning investors
As in other asset classes, interest in infrastructure in the transportation sector. Deal activity dropped
has picked up as the vaccine roll-out accelerates. sharply, with investors struggling to exit some assets.
Among investors surveyed by Preqin in June 2021, Concern has since shifted onto the potential for
over half (51%) expect to invest more capital in the rising interest rates: 26% of investors are troubled
asset class, and 34% expect to maintain the same by this, up from 14% last year. Financial stimulus
amount of capital, over the next 12 months (Fig. by governments and central banks is expected to
7.1). This is similar to 2019, when 28% expected lead to global growth and higher inflation. Increased
to allocate more capital and 51% to maintain their inflation rates could hit valuations if they are followed
existing allocations. by high interest rates. However, if assets are held to
hedge inflation, demand could increase.
With a recovery underway, the exit environment has
become less of a concern for investors. In June 2021, Despite this, infrastructure is the asset class
only 10% of investors saw this as a key challenge posing the least amount of issues for investors. The
to return generation (Fig. 7.2). This has decreased only category in which it scores is regulation, as
significantly from 45% in June 2020, when the uncertainty around future environmental legislation
pandemic caused an unprecedented drop in usage prevails.
of assets with previously stable returns, such as
airports and others
Fig. 7.1: Investors' Expected Capital Commitments to Infrastructure Funds in the Next 12 Months Compared
to the Previous 12 Months, 2017 - 2021
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Less Capital Same Amount of Capital More Capital

As investors prepare to allocate more capital to Compared with last year’s survey, investors are
infrastructure, their strategy preferences appear optimistic about infrastructure’s potential. Although
to be shifting. Almost half (47%) of investors feel high interest rates are of concern, more than half
that value added is currently presenting the best of respondents expect to invest more capital in the
opportunities in the asset class, up from just a asset class in the coming year. Furthermore, a rise in
quarter a year ago (Fig. 7.3). Opportunistic and inflation could prove a boon for those assets held as
distressed went from 42% and 25% in 2020 to 21% inflation hedges.
and 6% in 2021, respectively, aside from some very
specific assets.
Fig. 7.2: Infrastructure Investor Views on the Key Challenges for Return Generation in the Next 12 Months,
2020 vs. 2021
70%
60%
50%
Proportion of
Respondents
40%
30%
20%
10%
0%
Interest
Competition
Volatility
Geopolitical
Regulation
Environment
Deal Flow
Valuations
Currency
Commodity
Volatility
Landscape
Market
Rising
for Assets
Market
Rates
Volatility
Stock
Market
Asset
Exit
Jun-20 Jun-21
Fig. 7.3: Investor Views on Fund Types Presenting the Best Opportunities in Infrastructure, 2020 vs. 2021
50%
45%
40%
35%
Proportion of
Respondents
30%
25%
20%
15%
10%
5%
0%
Secondaries
Core-Plus
Core
Distressed
Debt
Opportunistic
Fund of
Added
Value
Funds
Jun-20 Jun-21

Fig. 7.4: Investor Views on Developed Markets Presenting the Best Opportunities in Infrastructure,
2020 vs. 2021
80%
70%
60%
Proportion of
Respondents
50%
40%
30%
20%
10%
0%
Nordic
New Zealand
Japan
US
(Excl. UK)
UK
Canada
Korea
South
Singapore
Western
Australia &
Europe
Jun-20 Jun-21
Fig. 7.5: Investor Views on Emerging Markets Presenting the Best Opportunities in Infrastructure,
2020 vs. 2021
70%
60%
50%
40%
30%
20%
10%
0%
China
America
America
Africa
Central &
Southeast
India
Middle
Central
Eastern
East
Europe
South
Asia
Jun-20 Jun-21

Natural Resources: Investors

Reap Their Rewards as
Performance Picks up
New commodities ‘super cycle’ piques natural resources investors'

interest once again as many look to tap into emerging markets
Historically, investors have used natural resources as survey in November 2020, when the majority of
a tool for diversification in their portfolios. While this respondents were aiming for 6-7% return. This is in
remains a key attraction for some investors, others line with findings from the Preqin Quarterly Update:
look to the asset class for a reliable income stream. Natural Resources, Q2 2021, where we observed
In particular, some solar and wind assets can offer improvements to returns over one-, three-, and five-
this through their purchase price agreements (PPA) year time horizons.
or through government incentive packages. As
market participants refocus away from hydrocarbon Over five years, natural resources assets returned
power sources, the renewables sector is growing on 6.0% per year, compared to infrastructure (10.0%)
a global scale. and real estate (6.6%). This is likely a result of
strengthening asset pricing, as reported by 44%
Among investors surveyed in June 2021, the majority of investors active in natural resources. This
of absolute returns targeted are in the 8-10% band. resurgence can partly be explained by the recovery
Targeted returns have risen compared with our of the oil market and rising commodity prices as the
Fig. 8.1: Natural Resources Investors' Reasons for Investing in Natural Resources
Reduce Portfolio Volatility
Reliable Income Stream
Inflation Hedge
Low Correlation to Other Asset Classes
High Absolute Returns
High Risk-Adjusted Returns
Diversification
0% 10% 20% 30% 40% 50% 60%


'super cycle' kicks into gear.1 A super cycle occurs Investor sentiment is positive for the asset class.
when there is a sustained period of abnormally Concern about the impact of the geopolitical
strong demand growth that producers struggle to landscape on return generation has reduced
match, sparking a rally in prices that can last years noticeably compared with six months ago, from
or more. 39% in H1 2021 to 28% in H2 2021 (Fig. 8.4). The
biggest concern (cited by 44% of investors) is how
The majority (71%) of investors feel natural resources the commodity markets will unfold over the next
met or exceeded their return expectations over 12 months and the potential for volatility given the
the past 12 months (Fig. 8.3). A further 43% expect strong price movements we have seen.
returns to improve over the next 12 months, pointing
toward rising allocations. In the current market, there is a consensus that we
are either recovering from the last cycle, or on the
1
https://www.ft.com/content/1332da37-bf45-409f-9500-2fdac344d1dd
Fig. 8.2: Natural Resources Investors' Targeted Fig. 8.3: Investor Views on the Performance of
Annualized Returns Their Natural Resources Portfolios in the Past
12 Months
35% 80%
30%
Proportion of
Respondents
60%
25%
40%
20%
20%
15%
0%
10%
Expectations
Met Expectations
Fallen Short of
N/A - Not Active in

Expectations
Exceeded
5%
Asset Class
0%
10.01 - 12%
12.01 - 14%
14.01 - 16%
16.01 - 18%
18.01 - 20%
20% or more
Less than 5%
5.01 - 8%
8.01 - 10%
Jun-20 Jun-21
Source: Preqin Investor Survey, June 2021 Source: Preqin Investor Surveys, June 2020 - 2021
Fig. 8.4: Natural Resources Investor Views on the Key Challenges for Return Generation in the Next 12
Months, 2020 vs. 2021
50%
45%
40%
Proportion of
Respondents
35%
30%
25%
20%
15%
10%
5%
0%
Interest
Competition
Volatility
Deal Flow
Environment
Regulation
Valuations
Currency
Commodity
Geopolitical
Volatility
Landscape
Market
Rising
for Assets
Market
Rates
Volatility
Stock
Market
Asset
Exit
Nov-20 Jun-21
Source: Preqin Investor Surveys, November 2020 - June 2021

rise of the next cycle. The largest proportion (31%) investors have to be exposed to emerging markets,
believe we are in a rising market. Some believe we which is a concern for those investing outside of
are already approaching the peak, and that the next renewables where the scope for investment is more
big step will see interest rates rise from their all- restricted. For example, many timber-focused funds
time lows in many economies. The specter of soaring in markets are focused on investments in South
inflation is leading others (11%) to believe central America, particularly Brazil. Opportunities to invest
banks – like the Bank of England2 – will push the in developed markets in timberland are smaller
interest rate decision forward, as they try to keep a in number than in renewable energy. On the other
lid on the rising cost of living. hand, many investors (35%) are chasing returns by
direct investment, which will provide them with more
Among emerging markets, our survey reveals China flexibility by effectively side-stepping fund managers
(45%), Africa (34%), and South America (26%) ranked and their fees.
as the most attractive regions to natural resources
investors. In fact, natural resources has the highest It's clear is that many private market participants
proportion of investors looking to target most (10%), see favorable opportunities in the natural resources
if not all (13%), of their investments in emerging space. The direction in which the super cycle will roll
markets (Fig. 8.5). will be the main theme to consider. For those already
active and invested in the booming commodities
Clearly some investors are choosing to take market, returns will be rewarding. There is the
advantage of the risk/return profile that these potential to draw in new investors, but as always,
regions offer. You could argue that given the timing entry into the market will be key.
location of many commodities, natural resources
2
https://www.thisismoney.co.uk/money/markets/article-9853433/BoE-set-raise-rates-earlier-expected-says-HSBC-boss.html
Fig. 8.5: Real Assets Investors' Plans to Target Developed or Emerging Markets by Asset Class
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Only Developed Mainly Developed A Mix of Developed and Mainly Emerging Only Emerging
Markets Markets Emerging Markets Markets Markets
Real Estate Infrastructure Natural Resources

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of Alternatives®
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Preqin Investor Outlook:

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3 Foreword 17 Hedge Funds: Interest Cools as Markets

In-House Contributors Data Support

Important Notice, Please Read

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Outlook Remains Bright for

Fig. 1.1: Institutional Investors by Number of Alternative Asset Classes Invested In

None One Two Three Four Five Six

24% 23% 14% 12% 10% 9% 9%

Source: Preqin Pro

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Private Private Hedge Real Natural

72% 35% 44% 65% 36% 37%

Private Private Hedge

13.8% 6.2% 12.1%

10.1% 5.3% 4.7%

Less than 5% 5 to 9.9% 10 to 19.9% 20% or More

Source: Preqin Investor Survey, June 2021

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Source: Preqin Investor Survey, June 2021

Source: Preqin Investor Survey, June 2021

Fig. 1.7: Investor Views on Valuations of Alternative Asset Classes

Source: Preqin Investor Survey, June 2021

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Source: Preqin Investor Survey, June 2021

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ESG: Companies’ Capabilities

Regulation could be the driver behind widespread adoption of ESG

Source: Preqin Investor Survey, June 2021

8 User License for Udita Mehta

Source: Preqin Investor Survey, June 2021

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Concerns over Founder CEOs with Voting Control

Source: Preqin Investor Survey, June 2021

Source: Preqin Investor Survey, June 2021

10 User License for Udita Mehta

Source: Preqin Investor Surveys, 2017 - 2021

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Jun-19 Jun-20 Jun-21

Source: Preqin Investor Surveys, June 2019 - 2021

Source: Preqin Investor Surveys, June 2020 - 2021

12 User License for Udita Mehta

Source: Preqin Investor Surveys, June 2019 - 2021

Jun-19 Jun-20 Jul-21

Source: Preqin Investor Surveys, June 2019 - 2021

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Private Debt: Demand

Negative real treasury yields drive investors to private debt

Source: Preqin Investor Surveys, June 2017 - 2021

14 User License for Udita Mehta

Jun-19 Jun-20 Jun-21

Source: Preqin Investor Surveys, June 2019 - 2021

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Jun-19 Jun-20 Jun-21

Source: Preqin Investor Surveys, June 2020 - 2021

Source: Preqin Investor Surveys, June 2020 - 2021

16 User License for Udita Mehta

Strong performance of risk assets could lead to a dip hedge fund

Source: Preqin Investor Survey, June 2021

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Source: Preqin Investor Surveys, June 2017 - 2021

0% 20% 40% 60% 80% 100%