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PE Funds Projected to Overtake Hedge Funds as Largest Alternative Asset Class

October 24, 2018, 08:00 AM
Filed Under: Economic Commentary

As part of its Future of Alternatives initiative, Preqin predicts that the alternative assets industry – comprising private capital and hedge funds – will reach $14tn in assets under management by 2023. The industry currently holds $8.8tn in assets as of the end of 2017, but is predicted to expand by 59% over the next five years (a compound annual growth rate of 8.0%). 

Private equity funds are predicted to overtake hedge funds to become the largest alternative asset class. They are projected to grow by 58%, rising from their current AUM of $3.1tn to $4.9tn, while hedge funds will post lower growth of 31% to rise from $3.6tn to $4.7tn in assets. Private debt and real assets funds are predicted to double their AUM. 

These predictions are based on Preqin’s interviews with 420 fund managers and investors. Industry participants were asked what their predictions were for AUM in each alternative asset class in 2023, based on AUM totals in 2008 and 2017. Preqin then calculated an average of their responses to produce its predictions.

“Fourteen trillion dollars may sound like an overly ambitious prediction for the alternative assets industry, but it is lower than the average growth rate we’ve seen in the past decade,” said Mark O’Hare, CEO, Preqin. “There are several key factors that will drive this growth, including: the proven long-term performance of alternatives; the growing opportunities available in private debt; and the rise of emerging markets in which alternatives funds are already entrenched. If anything, we believe that $14tn is more likely to be too low than it is to be too high.” 

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