Investor Update on Alternatives...Investor Update on Alternatives Where Are We In The Market? What...
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Investor Update on Alternatives Where Are We In The Market? What Does The Future Hold? Jesse Fahy Manager of Private Capital Data, Preqin March 2019, Quebec City
Transcript of Investor Update on Alternatives...Investor Update on Alternatives Where Are We In The Market? What...
Investor Update on AlternativesWhere Are We In The Market?
What Does The Future Hold?
Jesse Fahy
Manager of Private Capital Data, Preqin
March 2019, Quebec City
www.preqin.com
Clients include over 60,000 industry
professionals from 16,000 firms
Multi award-winning service
Data available via online databases,
publications and research reports
Guangzhou
Hong Kong
Singapore
London
New YorkSan Francisco
Manila
Private Equity & Venture Capital | Hedge Funds | Real Estate | Infrastructure | Private Debt | Natural Resources
About Preqin
Market Snapshot
Where Are We Now?
www.preqin.com
Alternatives AUM Has Increased More Than Three-Fold Over The Past Decade
$9.5tn in AUM across all alternative asset managers globally (as of June 2018)
3,1
6,5
9.5
2008 2013 juin-18
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Private Capital AUM at a Record High $5.8tn
3397
907
496
767
241
0
1000
2000
3000
4000
5000
6000
7000
déc-05 déc-06 déc-07 déc-08 déc-09 déc-10 déc-11 déc-12 déc-13 déc-14 déc-15 déc-16 déc-17 juin-18
NATURAL RESOURCES
PRIVATE DEBT
INFRASTRUCTURE
REAL ESTATE
PRIVATE EQUITY
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Private Capital Fundraising Also ‘Slows’ from 2017 High: $824bn Raised in 2018, $100bn Less Than in 2017
246350
407 410
213 186239 243
328420 415
495573
45781
104
141 147
53 58
77 88
109
122 140
131
132
134
10
25
44 41
15 33
27 30
49
46 56
67
75
92
22
39
74 100
24 42
4566
76
79103
112
134
121
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agg
rega
te C
apit
al R
aise
d (
$b
n)
Year of Final Close
Private Capital Historical Fundraising, 2005 to 2018
NATURAL RESOURCES
PRIVATE DEBT
INFRASTRUCTURE
REAL ESTATE
PRIVATE EQUITY
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…With Investors Increasing Their Exposure And Plenty Of Scope For Future Growth
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And This Continues to Go into the Hands of Fewer Managers: Capital Consolidation Increasing
0
500
1000
1500
2000
2500
3000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
No
. of
Fun
ds
Year of Final Close
Private Capital Historical Fundraising, 2005 to 2018
NATURAL RESOURCES
PRIVATE DEBT
INFRASTRUCTURE
REAL ESTATE
PRIVATE EQUITY
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Steady Trend of Capital Flowing to Top Managers
7% 6% 6% 5% 4% 5% 4% 3% 3%
30% 29%24%
21% 21% 23% 22% 19% 18%
18% 21%
18%15% 18% 14% 19%
15% 16%
20%24%
26%
21%22% 21% 16%
21% 21%
26%21%
27%37% 35% 37% 39% 41% 43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Percentage of Aggregate Capital Raised by Fund Size
Less than $100mn $100-499mn $500-999mn $1-2.5bn $2.5bn+
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$1bn+ Funds Account for Over Half of All Capital Raised Last Year
4% 3% 1% 1%
20% 24%17%
8% 10%
15%
21%
20%
11%
18%
19%
27%
24%
21%
17%
43%
25%
38%
60%54%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Private Equity Real Estate Private Debt Infrastructure Natural Resources
Percentage of Aggregate Capital Raised by Fund Size in 2018
Less than $100mn $100-499mn $500-999mn $1-2.5bn $2.5bn+
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Distributions Trending Up This Decade
-400,0
-200,0
0,0
200,0
400,0
600,0
800,0
1000,0
1200,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H12018
Private Capital: Capital Called vs. Capital Distributed, 2000 to H1 2018
Capital Called Up ($bn)
Capital Distributed ($bn)
Net Cash Flow ($bn)
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PE Net Cash Flows Shows Signs of Weakening
-200
-100
0
100
200
300
400
500
600
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18
Private Equity: Capital Called vs. Capital Distributed, 2005 to H1 2018
Capital Called ($bn)
Capital Distributed ($bn)
Net Cash Flows ($bn)
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Record Dry Powder Levels ($2.1tn) Adds to Challenging Deal Making Environment
0
500
1000
1500
2000
2500
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18
Dry
Po
wd
er (
$b
n)
Private Capital Dry Powder, 2005 to June 2018
NATURAL RESOURCES
INFRASTRUCTURE
PRIVATE DEBT
REAL ESTATE
PRIVATE EQUITY
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Despite this 2018 Buyout Deal Activity Reached Record Levels….
1633
0
50
100
150
200
250
0
200
400
600
800
1000
1200
1400
1600
1800
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agg
. Dea
l Val
ue
($b
n)
No
. of
Dea
ls
No. of Deals
Aggregate Value ($bn)
www.preqin.com
…As Did Real Estate
8867
0
50
100
150
200
250
300
350
400
450
500
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agg
. Dea
l Val
ue
($b
n)
No
. of
Dea
ls
No. of Deals
Aggregate Value ($bn)
www.preqin.com
…As Did Private Debt
1633
0
50
100
150
200
250
0
200
400
600
800
1000
1200
1400
1600
1800
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agg
. Dea
l Val
ue
($b
n)
No
. of
Dea
ls
No. of Deals
Aggregate Value ($bn)
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…As Did Venture Capital
0
50
100
150
200
250
300
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agg
. Dea
l Val
ue
($b
n)
No
. of
Dea
ls
No. of Deals
Aggregate Value ($bn)
What’s Driving AUM Growth?
Strong Relative and Absolute Returns
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Alternatives Role in a Low Return Environment
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
12 Months 3 Years 5 Years 10 Years
Med
ian
Net
Ret
urn
Median Public Pension Fund Returns by Asset Class (as at June 2018)
Private Equity
Real Estate
Fixed Income
Listed Equity
Total InvestmentPortfolio
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Private Capital Performance Continuing to Deliver For Investors
-25
25
75
125
175
225
275
déc
-07
avr-
08
aoû
t-08
déc
-08
avr-
09
aoû
t-09
déc
-09
avr-
10
aoû
t-10
déc
-10
avr-
11
aoû
t-11
déc
-11
avr-
12
aoû
t-12
déc
-12
avr-
13
aoû
t-13
déc
-13
avr-
14
aoû
t-14
déc
-14
avr-
15
aoû
t-15
déc
-15
avr-
16
aoû
t-16
déc
-16
avr-
17
aoû
t-17
déc
-17
avr-
18
PrE
QIn
Ind
ex R
etu
rns –
Reb
ased
to
10
0 a
s o
f 3
1/1
2/2
00
7
PrEQIn Quarterly Index
PRIVATE EQUITY
PRIVATE DEBT
REAL ESTATE
INFRASTRUCTURE
VENTURE CAPITAL
S&P 500
MSCI WORLD
www.preqin.com
Looking Beyond Sheer Returns: Investors Are Using Alternative Assets For Many Reasons
0%
10%
20%
30%
40%
50%
60%
70%
80%Diversification
High Risk-Adjusted Returns
High Absolute Returns
Low Correlation to Other Asset ClassesInflation Hedge
Reliable Income Stream
Reduce Portfolio VolatilityPrivate Equity
Private Debt
Real Estate
Infrastructure
Natural Resources
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Private Equity: Diversify to Add High Risk-Adjustedand Absolute Returns
0%
10%
20%
30%
40%
50%
60%Diversification
High Risk-Adjusted Returns
High Absolute Returns
Low Correlation to Other Asset ClassesInflation Hedge
Reliable Income Stream
Reduce Portfolio VolatilityPrivate Equity
www.preqin.com
Private Debt: Diversify to Add High Risk-Adjusted Returns & a Reliable Income Stream
0%
10%
20%
30%
40%
50%
60%
70%Diversification
High Risk-Adjusted Returns
High Absolute Returns
Low Correlation to Other Asset ClassesInflation Hedge
Reliable Income Stream
Reduce Portfolio Volatility
Private Debt
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Real Estate and Infrastructure: Diversify as an Inflation Hedge and for a Reliable Income Stream
0%
10%
20%
30%
40%
50%
60%
70%
80%Diversification
High Risk-Adjusted Returns
High Absolute Returns
Low Correlation to Other Asset ClassesInflation Hedge
Reliable Income Stream
Reduce Portfolio VolatilityReal Estate
Infrastructure
www.preqin.com
Natural Resources – To Diversify to Reduce Correlation & an Inflation Hedge
0%
10%
20%
30%
40%
50%
60%
70%Diversification
High Risk-Adjusted Returns
High Absolute Returns
Low Correlation to Other Asset ClassesInflation Hedge
Reliable Income Stream
Reduce Portfolio Volatility
Natural Resources
www.preqin.com
Private Capital Largely Delivering for Investors
6%
8%
10%
12%
14%
16%
18%
20%
6% 7% 8% 9% 10% 11% 12% 13% 14%
Ris
k -
Stan
dar
d D
evia
tio
n o
f N
et IR
R
Return - Median Net IRR
Private Capital: Risk/Return by Asset Class (Vintages 2005-2015)
Private Equity
Private Debt
Real Estate
Infrastructure
Natural Resources
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Downward Pressure on Management Fees…
2,00
1,81
1,41 1,50
1,84
1,631,67
1,34
1,68
0,00
0,50
1,00
1,50
2,00
2,50
2010 2011 2012 2013 2014 2015 2016 2017 2018
Mean Management Fees During Investment Period by Asset Class
Private Equity
Real Estate
Private Debt
Infrastructure
Natural Resources
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And Performance Fees
19,2018,86 18,31
19,67
18,00
18,71
20,0019,17
0,00
5,00
10,00
15,00
20,00
25,00
2010 2011 2012 2013 2014 2015 2016 2017 2018
Mean Carried Interest by Asset Class
Private Equity
Real Estate
Private Debt
Infrastructure
Natural Resources
www.preqin.com
Fee Structure to Match Your Risk Profile
1,79
1,671,68 1,69
1,771,76
1,60
18,42
16,0017,07
18,3019,24
20,3119,25
0,00
5,00
10,00
15,00
20,00
25,00
1,50
1,55
1,60
1,65
1,70
1,75
1,80
1,85
Less than $50mn $50-99mn $100-249mn $250-499mn $500-999mn $1000-1999mn Greater than $2bn
Average Fee Structure for 2018 Vintage Private Capital Funds by Size
Average Management Fee During Investment Period Average Carried Interest
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More Investors Intend to Increase Rather than Decrease Exposure to Alternatives in 2019
12%19% 16% 12%
17%
31%23%
32%35%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Private Equity Real Estate Private Debt Infrastructure Natural Resources
Less Capital Than in Last 12 Months Same Amount of Capital as in Last 12 Months
More Capital Than Last 12 Months
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However, Some Signs that Fundraising Could be More Challenging for Some Private Capital Strategies
37%
42%
27% 26%
39%
11%
31% 32%
26%23%
35%
29%
8%10%
27%
16%
10%
19%
12%
16%
21%19%
12%
17%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Private Equity Private Debt Hedge Funds Real Estate Infrastructure Natural Resources
More Capital Than Last 12 Months (in 2018) More Capital Than Last 12 Months (in 2019)
Less Capital Than in Last 12 Months (2018) Less Capital Than in Last 12 Months (2019)
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Reminder: Private Equity Net Cash Flows to LPs Weakened
-200
-100
0
100
200
300
400
500
600
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18
Private Equity: Capital Called vs. Capital Distributed, 2005 to H1 2018
Capital Called ($bn)
Capital Distributed ($bn)
Net Cash Flows ($bn)
Where Do We Go From Here?
www.preqin.com
Record Number of Funds in Market for Private Equity
0
500
1000
1500
2000
2500
3000
3500
4000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Private Equity Funds in Market over Time
No. of Funds in Market Aggregate Capital Targeted ($bn)
www.preqin.com
And Real Estate…
0
100
200
300
400
500
600
700
800
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Real Estate Funds in Market Over Time
No. of Funds in Market Aggregate Capital Targeted ($bn)
www.preqin.com
And Infrastructure…
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Infrastructure Funds in Market Over Time
No. of Funds in Market Aggregate Capital Targeted ($bn)
www.preqin.com
And Natural Resources
0
50
100
150
200
250
300
350
2016 2017 2018 2019
Natural Resources Funds in Market Over Time
No. of Funds in Market Aggregate Capital Targeted ($bn)
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Alternative Assets Growth Expected to Continue
3,1
6,5
9,5
14,0
0
2
4
6
8
10
12
14
16
2008 2013 2018 2023 Projection
AU
M (
$tn
)
Projected Growth of Alternative Assets Industry
Summary
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Summary
• Private Capital reached record levels of AUM in June 2018: $5.8tn• LP enthusiasm towards Private Capital seems to be waning a bit compared to last year• End of cycle? Strong relative returns of Private Capital more important than ever• Record levels of capital and crowded market leads to increased competition for deals and
inflated valuations• Increased competition also pressures GPs to differentiate, either through strategy or terms
for LPs
www.preqin.com
Further Information
Jesse Fahy, Manager of Private Capital Data
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