The market upheaval shows no signs of dissipating soon, so institutional investors are constantly trying to adjust their portfolios to address the chaos. A recent investor survey found that institutions remain bullish on private equity and hedge funds, although all asset classes saw declines in intentions to invest.
The fact that private equity is in first place is likely because PE remained resilient during the first quarter despite the public markets’ plunge. The Lincoln Private Market Index rose 1.7% during the quarter, at a time when many of the gains recorded in public company valuations in the second half of 2021 were erased following Russia’s invasion of Ukraine.
Interest by asset type
With Intelligence’s latest survey on investor intentions found that 72% of institutional and private wealth investors plan on investing in private equity within the next 12 months. Hedge funds were in second place, with 54% of the investors surveyed.
Apparently, investors believe that private equity and hedge funds have recorded robust returns during the market upheaval. The consensus also suggests a belief that these two alternative asset classes provide timely risk management benefits and niche opportunities in the current market environment.
Hedge funds returned 10.2% for 2021 and recorded their first net inflow in over five years at $25 billion. The firm describes the recent change in sentiment between December and April as “striking,” noting that all asset classes saw a decline in intentions to invest among investors.
Interestingly, private equity was one of the two asset classes with the largest decline in intentions to invest. Equities was the other one, with both recording a 10% or more decline in intentions to invest. Real estate saw the smallest decline in intention to invest at 3%.
Despite the significant decline in investor intentions to invest in equities, interest in the asset class was a little higher than interest in hedge funds.
Interest by investor type
With Intelligence reports that foundations and endowments are “most enthused” about private equity due to its capacity for high, disruptive returns and its record in seeking technological solutions to social issues like climate change.
The firm added that corporate pensions were the clear outlier in terms of their intentions, with 67% intending to invest in real estate within the next 12 months. This is likely because real estate has helped corporate pensions meet their de-risking objectives as a long-term growth asset while also rewarding them with an illiquidity risk premium.
On the other hand, 67% of public pensions intend to invest in private debt and equity. According to This interest demonstrates that private debt has now replaced bonds as a source of fixed income for retirement funds, although it comes with higher risk.
The firm reported that family offices are now the least likely to invest in real estate at 49%, potentially due to the strong headwinds against the asset class. With Intelligence explained that their characteristics as an entity, such as their smaller size, flexibility, streamlined decision-making and higher risk tolerance, make them a complementary pair with private equity and hedge funds due to these asset classes’ innate strengths and recent outperformance.
The survey also found that 75% of family offices plan to invest in private equity, while 57% expect to invest in hedge funds within the next 12 months.
Problems for private tech investors
The more than $2 trillion decline in value from the five biggest tech firms has turned out to be ominous for privately-owned, high-growth tech firms. The valuations of such companies have become stretched, putting the pinch on private equity owners.
Performance and sustainability expectations for these private tech firms have changed. As a result, With Intelligence advises investors to watch for further downside within the asset class, as it expects these factors to transform investment intentions during the second half of the year.
Choosing managers to invest with
The two top priorities for investors when choosing fund managers to invest with were the consistency of their team members and the general partners having skin in the game. The quality of their risk management protocols was in third place.
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