Report: HNW interest in alternative assets has ‘tremendous momentum’

New research shows that there is an increasing HNW bullishness towards alternative assets – and it’s showing in portfolios

More than two in three HNW investors dedicate at least 10 per cent of their portfolios to alternative assets and some 30 per cent plan to increase their weighting over the next 12 months, according to new research.

A survey of more than 200 HNW investors from fund syndication firm Connection Capital found that a majority (68 per cent) now allocate upwards of ten per cent of their portfolio to alternative assets, defined as private equity/debt; commercial property; infrastructure and alternative fund strategies. The figure compares to 63 per cent in 2019 and 50 per cent the year before.

Interest in alternative assets was mainly attributed to diversification from ‘mainstream quoted equity markets’, which was cited by 77 per cent of respondents. Some 67 per cent cited a desire to achieve outsized returns, followed by 31 per cent who cited an ‘interest factor’ towards the asset class.

‘The economic impact of Covid-19 has really underlined the value of alternatives to counter the mix of volatility and over-valuation we are seeing in mainstream markets and create a better balance of risk and reward within private investor portfolios,’ said Claire Madden, managing partner at the firm. ‘There’s a palpable sense among the private capital community that not only is greater diversification sensible and desirable, but that now is an opportune time to increase exposure to alternatives.’

When asked how they attempted to navigate the pandemic over the last 12 months from a portfolio perspective, some 30 per cent increased their allocations to alternatives, compared with 44 per cent that bult up cash reserves and 28 per cent who increased their weighting to quoted equities.

In terms of the specific types of alternative investment strategies, two-thirds (66 per cent) of private investors said that private equity with a focus on growth capital followed by private equity buyouts ( 64 per cent and special situations and distressed investing (54 per cent).

Content from our partners

Why a patient-first approach is key in healthcare

Abu Dhabi: How the ‘capital of capital’ became a magnet for UHNWs

Abu Dhabi Finance Week in the ‘Capital of Capital’

Indeed, according to the British Private Equity and Venture Capital Association, private equity continues to comfortably outperform public markets. The association’s 2019 Performance Measurement Survey reveals the five-year and 10-year annual returns were 20.1 per cent and 14.2 per cent respectively. By comparison, the FTSE All-Share returned 7.5 per cent and 8.1 per cent to investors over the same time periods.

‘The vast majority of our clients say they are excited about the investment potential that exists currently in alternative assets and believe there will be excellent deals available for those who are liquid and are able to take some risk,’ added Madden.