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Performance in alternative assets: High returns, high expectations, hedge fund AUM at $3.58tn

Monday, September 17, 2018
Opalesque Industry Update - Preqin's 2018 Performance Monitor finds that the industry's long-term performance still outpaces most other asset classes.

Preqin's 2018 Alternative Assets Performance Monitor looks at the returns of the industry as well as within each asset class, and finds that funds are returning more capital to investors than ever before, while maintaining strong longerterm performance.

Investors are largely satisfied with the returns of their alternative assets investments, and a net majority of them believe that performance will continue to improve in the months ahead, despite widespread concerns about pricing and volatility in equity markets.

Highlights of the 2018 Preqin Alternative Assets Performance Monitor:

* Assets under Management: As of the end of 2017, the alternative assets industry holds $8.81tn in AUM. This includes $5.23tn in private capital AUM and $3.58tn in hedge fund AUM.

* Capital Calls and Distributions: While below the record levels achieved in 2016, net capital distributions surpassed capital calls in 2017 for a fifth consecutive year. Capital calls reached a record high of $789bn, and net capital flow was $114bn.

* Alternatives vs Public Markets: Private capital funds have performed strongly against public markets in the longer term. In fact, private capital outstripped all major benchmarks over the 10 years to December 2017. Hedge funds have struggled to match the historic bull run on public markets, but have returned an annualized 7.50% over the past 10 years compared to 7.82% for the S&P 500 PR Index.

* PrEQIn Index: According to the PrEQIn Index, buyout has outperformed all other private capital strategies, while the private capital industry as a whole has consistently outperformed the public market index since June 2002.

*Investor Satisfaction: The majority of investors feel that returns have met or exceeded expectations over the past years. At least 80% of respondents across all asset classes expect similar or better performance in the upcoming year than in the past 12 months.

* Fund Pedigree: Top-quartile private capital funds tend to be followed by top-quartile successor funds: 36% of topquartile predecessors had a top-quartile successor, while 15% of bottom-quartile funds were followed by a topquartile fund.

* Risk vs Return: Alternatives present a wide range of different risk/return profiles. Whereas growth funds tend to be higher risk with higher returns, direct lending funds have traditionally been less risky while providing lower returns. It's this variation in risk/return profiles that can appeal to investors seeking to build diversified portfolios.

* Regional Differences: North America- and Europe-focused private capital funds hold the largest share of the private capital market and have posted the strongest returns. Globally, private capital funds posted median net IRRs between 10% and 11% for vintage 2005-2015 funds.

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