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According to the Crestbridge Asset Managers' Mood Index, allocations to private equity and real estate asset classes in the UK and Europe are set to increase overall in 2023, according to responses from leading alternative investment fund managers.

Based on feedback, the largest allocations fund managers are considering for 2023 will be private debt and growth capital with index readings of 71% and 66% respectively, indicating the industry is expecting a significant boost in these areas.

The vast majority of fund managers (84%) reported they were happy with their portfolio performance over the past 12 months, saying performance partly met, did meet or exceeded their expectations. The remainder indicated that portfolio performance did not meet their expectations. This is interesting feedback given market challenges but perhaps reflects the positive performance of private equity more generally when compared to public markets.

It was reported that the biggest internal challenge faced by fund managers in running their fund is sourcing and retaining talent, according to 35% of respondents. Other challenges mentioned include managing data, keeping abreast of technological innovation, achieving operational efficiency and finally regulation and compliance.

Fund managers were also asked what they expected the biggest obstacles to growth to be over the next 12 months. Respondents predicted a recession (42%) and political uncertainty (28%) to be the main issues. Fundraising challenges, performance, global regulation, competition and consolidation were also mentioned as potential obstacles.

From a European perspective, fund managers expect to continue to use Luxembourg, UK, Ireland and the Channel Islands. However, Luxembourg is seen as the most popular domicile for alternatives funds based on the feedback.

When it comes to the hot topics for investors during the fundraising due diligence process, cybersecurity and ESG topped the list, with 71% and 57% of respondents citing these topics, respectively. Other areas of interest included cash management (21%), outsourcing (28%), and domicile choice (21%). These findings demonstrate the increasing importance of data security and ESG in private capital.

Alex Di Santo, Group Head of Private Equity for Crestbridge, said: "It is clear that alternative investments faced some significant challenges in 2022 given the macro-economic environment. Indeed we saw GPs and LPs tackling dealmaking and fundraising slowdowns. Despite these challenges private capital continues to perform well when compared to public markets and, whilst these challenges won't disappear in 2023, fund managers remain optimistic about the asset class."

"With the CAMMI report, we gain valuable insights from fund managers about their expectations for alternative investments over the coming year. The results indicate that private capital will remain continue to provide opportunities for growth and value creation but that managers may seek to pivot their strategy to deal with macro conditions."

The Crestbridge Alternative Managers' Mood Index (CAMMI) is an index of the prevailing direction of allocation trends in private equity and in real estate. It consists of a diffusion index (an advanced / decline measurement) that summarises whether allocations for each sub-asset class, as viewed by fund managers, is increasing, staying the same, or decreasing.

Press release

The full report can be found here:

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