WHAT'S DRIVING MOMENTUM IN ALTERNATIVE INVESTMENTS?
Posted on in Editorial by Sonja
According to multiple reports, the appetite for diversifying into alternative assets is growing. KPMG’s 2017 M&A report notes the dip in alternative asset management in 2015, but has since rebounded in 2016, and will continue to do so in 2017. Private equity managers led the majority of the deals, followed by hedge funds and funds of hedge funds.
Preqin’s alternative assets survey reports that 40% of institutional investors are looking to invest more capital in 2017. In fact, 84% of surveyed investors have a positive perception on private equity in 2016, up from 65% in 2015.
Traditional managers are now looking toward the illiquid segment of alternative assets, thus a greater interest in private equity. These traditional managers act as buyers who are interested in diversifying their portfolio while maximizing their returns. On the other hand, seller's motivations include growth of capital, investment in firm infrastructure, and response to competitive fees.
Despite coming in at a close second behind PE, investors are weary of hedge funds due to macroeconomic factors that had the greatest impact on portfolios: stock market volatility, low interest rates, and Central Bank intervention.
KPMG also notes that managers who were traditionally only interested in long-term investments are now turning to M&A - an increase of liquid alternative assets to retail investors.
Nonetheless, KPMG emphasizes the due diligence necessary while targeting companies:
Be mindful of the quality of quantity of returns
Look into the company’s risk and compliance - especially since regulatory risks are prevalent
Contractual protection in regard to customer retention