Despite market volatility and an uncertain economic outlook, investors are committed to their alternative asset programs, declares Preqin in its half year investment update.

The majority of investors in alternatives say they intend to stay the course this year, telling Preqin they are satisfied with the performance of their portfolio over the last year.

“Almost all investors intend to either maintain (60%) or increase (33%) allocations to private capital, highlighting their confidence in the market and knowledge that funds that have invested through downturns and recessions have historically provided the best returns,” says Preqin.

The only sector where investors were solidly disappointed is natural resources. There, 58% said performance had fallen short of their expectations.

Hedge fund investors were evenly split between those saying performance failed to meet their expectations and those who said the opposite. But when those who felt the asset class had exceeded expectations are included, hedge funds came out on the positive side.

Preqin conducted its survey of institutional investors in June, before hedge funds had a third consecutive positive month. July was another strong month for the asset class. Preqin’s All-Strategies Hedge Fund benchmark turned positive for 2020 and improved the annual return to 5.46%.

Yet, even before knowing this, 44% of hedge fund investors said they expected to invest more capital in the class in the next year. Among the six asset classes, only private debt had a higher percentage of investors (48%) expecting to increase their investment.

Preqin alternative investment 2020.jpg

Fewer, however, foresee much improvement in their portfolios over the next 12 months. Preqin says hedge fund investors are the most optimistic with only 2-in-5 survey respondents expecting improvement. Private debt investors were not far behind, with 34% saying they expected improvement.

“In absolute terms investors expect their private capital portfolios to perform worse over the next 12 months, a finding that is in line with the economic devastation arising from the pandemic,” Preqin says, adding, “any investment will be hard pressed to perform well.”

“On balance, investors expect COVID-19 to have a slightly negative effect on the performance of their alternatives portfolios in the long term.”

Still, as Preqin noted, 63% of investors do not plan to change their strategy because of COVID-19; 29% intend to invest more vs. 7% that will invest less.

“The economic fallout from COVID-19,” declare Preqin, “Has not diminished investors’ appetite for alternatives.”

Photo by Estée Janssens on Unsplash


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Wall Street Bonuses Are Shrinking This Year

About those year-end bonuses Wall Street bankers and traders were expecting just a few months ago: If they happen at all they’re going to be smaller than last year.

The compensation consulting firm Johnson Associates Inc. says the prolonged business shutdown, which has kept millions unemployed, is weighing on banks, which have upped their cash reserves anticipating the possibility of widespread credit defaults.

They’ve also taken a hit to lending and related activity, as consumers have dramatically reduced their spending.

With so many stores closed US consumers had few alternatives but to save. The personal savings rate soared to 33.5% in April, more than four times the 7.5% in April 2019. Savings, as a percent of disposable income, has since fallen to 19% in June, according to data from the government’s Bureau of Economic Analysis. But that’s still well above the pre-COVID rate.

According to a Bloomberg article, Johnson Associates predicts that bonuses and incentives for those in hedge funds, asset management and private equity will be lower by as much as 15%. Those in retail and commercial banking are looking at up to a 30% bonus cut.

“That is going to be a really troublesome finish of the year,” report author Alan Johnson, is quoted as saying.

For stock and bond underwriters and equity traders on the other hand are likely to get bigger bonuses. The Johnson Associates prediction is their year-end bonus will be 15% or even 20% above last year.

Underwriters have been kept especially busy as companies struggled to raise money to maintain payrolls and cover other expenses.

Traders, meanwhile, have worked to keep up with record volumes of transactions from investors trying to stay ahead of the highly volatile, but rising, markets.

Photo by Patrick Weissenberger on Unsplash


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Green Key