In a marked departure from the previous year’s figures, alternative investment fundraising has experienced a significant slowdown, down by 27% year-to-date (YTD), according to data compiled by Preqin. A total of $740 billion has been raised since the beginning of the year, a stark contrast to the $1.02 trillion raised during the same period the previous year.

Observers attribute this trend to the remarkable resurgence of fixed-income investments, triggered by a considerable upswing in interest rates since 2022. Institutional investors, especially those involved in managing asset-liabilities, have pivoted towards fixed-income strategies in response to this shift, resulting in a logical and expected deceleration in the growth rates of alternative investment vehicles encompassing hedge funds, real estate, and private equity/credit.

Financial experts, including Drew Schardt, the head of investment strategy at Hamilton Lane, have acknowledged the challenging fundraising landscape. Schardt identifies factors such as market volatility, geopolitical tensions, and fluctuating interest rates over the past year as key contributors to this change. Notably, institutional investors like pension funds and foundations have imposed self-regulated limits on asset class exposure, which, combined with prior commitments to alternative investments, has constrained their ability to allocate additional funds to these sectors.

Jenny Johnson, CEO of Franklin Templeton, notes that while institutional interest in alternative investments has slowed, there is a concurrent increase in interest from wealthy individuals and wealth management entities.

Depressed valuations and a stagnant IPO market have compelled alternative investment managers to hold onto their assets rather than selling, resulting in reduced cash payouts to investors. This circumstance has limited the inflow of fresh capital into new funds, even though growth continues, albeit at a smaller rate. Goldman Sachs analyst Alex Blostein acknowledges that even struggling fund managers are managing to raise smaller amounts, demonstrating the sector’s resilience, with private credit as a standout performer.

Preqin data underscores the changing landscape, with a 53% decrease in the number of alternative funds raised compared to the same period in the previous year. Notably, the average fund size has increased by nearly $200 million, reaching $600 million in 2023. This shift signifies a preference for larger, more established fund managers.

As the market for alternative investments faces sluggish conditions, industry insiders anticipate prolonged timelines for existing fundraising endeavors and predict delays in the launch of new funds. Analysts like Alex Blostein suggest that plans to introduce new alternative offerings in 2024 might be postponed to 2025 given the current circumstances.

Photo Source: Google

August 29, 2023

Delino Gayweh

Serrari Financial Analyst