Covid-19 takes a toll on alternative assets outlook

Investments in alternative assets are set to see revision because of the disruption caused by the Covid-19 pandemic, according to London head-quartered capital market company Preqin.

When Preqin surveyed investors back at the end of 2019, the majority (83%) said they were planning new commitments to alternatives in the year ahead. Fast-forward to April 2020 and 59% of the 110 investors surveyed by Preqin now say that the number of commitments they plan to make to alternatives in 2020 has ‘slightly’ or ‘significantly’ decreased, with only 9% of investors planning to increase commitments.

The 110 investors surveyed operate across all alternative assets and family offices—20% of the 110 investors had the largest share among respondents. While asset managers made up 17% of respondents, banks comprised another 14%. In terms of geographies, 43% the surveyed investors were located in Europe, while 31% were based in North America and 22% in Asia.

“Indeed, many investors are concerned by the potential effects of the virus on the returns of their alternatives portfolios over the long term,” says Ashish Chauhan, senior associate, content at Preqin wrote in an official blog post on April 22. “53% believe the impact will be ‘moderately negative’,” Chauhan added.

Chauhan also highlighted that while the survey results clearly indicate a strong sense of caution among the investment community right now, there is much to suggest that investors are planning for the longer term and continuing to invest—in different sectors, in some cases.

Clearly, the economic impact of the Covid-19 crisis has been far from balanced; the fallout has hit some industries far worse than others. “As retail markets across the globe face a dramatic decline due to government lockdown measures, it’s no surprise that 34% of surveyed investors said they plan to avoid retail-focussed real estate investment in 2020 as a direct result of Covid-19,” Chauhan adds.

While almost half (47%) of investors said they were not avoiding any particular regions or sectors due to the crisis, this, in Chauhan’s view, does highlight the extent to which retail real estate markets may struggle to recover when government restrictions are lifted.

Logistics sector is one of the sectors which offer hope. Among the investors surveyed, 15% plan to target it in 2020. Chauhan quoted one of the surveyed investor saying that the sector “should benefit from broader acceptance of online shopping”.

For real estate as a whole, though, Chauhan wrote of another investor who felt that “people won’t have money to invest in real estate whereas healthcare sectors will be booming after normalcy returns.”

“Indeed, investors appear to be looking closely at healthcare-focussed private equity for the rest of the year,” adds Chauhan. “All eyes are currently on healthcare systems across the entire world as they attempt to overcome the virus, and 36% of surveyed investors plan to target the sector in 2020 as a result of the pandemic.”

Beyond the sectors that may or may not do well in the post-pandemic world, the Preqin survey also tried to assess the long-term implications for alternatives’ investors.

Interestingly, although investors are exercising caution in the short term, the survey highlights that many investors believe that Covid-19 will not have a lasting impact on their alternatives programmes.

Of the 110 investors surveyed, 63% do not anticipate any long-term effect on their future alternative investment strategy, “In fact, 29% of investors aim to divert more capital toward alternatives in the long term,” Chauhan noted.

“What the pandemic may change in the long term, though, is the way investors approach certain practices,” Chauhan adds. Because, when asked whether travel restrictions and social distancing were affecting their ability to make new investments currently, 82% of the surveyed investors said that these factors were having an impact because face-to-face meetings are either ‘fairly important’ or even ‘essential’ to decision-making.

As it would be the case for many industries, there is a looming question for the alternatives’ industry too; will investors be able to embrace remote working as the new normal? The largest proportion appears to think so: one-third of respondents said that fund manager marketing documents/pitches make face-to-face meetings non-essential.