Alternatives strategies recorded mixed first quarters of the year, with private debt, infrastructure and real estate continuing to be challenged by the ongoing COVID-19 outbreak but private equity soaring.
The pandemic impacted real estate in particular, according to one of a set of news releases by Preqin. Real estate funds raised $25 billion in the first three months of 2021 through 52 funds — a 25% decline in total capital raised and a drop of more than 50% in the number of funds reaching final close vs. the same quarter in 2020.
"This points towards fewer but larger funds closing — a continuation of the trend witnessed in 2020," David Lowery, real estate spokesman, said in a news release.
Preqin noted that 58% of investors expect to commit less than $50 million in fresh capital to real estate funds over the coming year.
Though there are "pockets of resilience" in real estate, with demand for industrial assets, office and retail transactions suffered, Mr. Lowery said.
Private debt also suffered in the first quarter, with 32 funds raising an aggregate $25 billion. The fundraising figure was in line with historical averages, but the number of closures was the lowest since 2016. In the first quarter 2020, 53 funds secured $27 billion in capital, a separate news release said.
Fundraising has also become more competitive in the past five years, with 592 funds looking to raise $300 billion in the market as of April. Distressed debt and special situations strategies in particular are garnering more attention from investors, with 51% of investors planning to commit fresh capital to distressed strategies and 49% targeting special situations over the next 12 months. In the first quarter of 2020, 42% of investors polled by Preqin planned to commit to distressed strategies and 30% to special situations.
Preqin said the private debt is facing emerging headwinds, with uncertainty about an uptick in inflation expectations.
However, inflation expectations are expected to benefit the unlisted infrastructure industry, despite a challenging quarter and 2020.
Twenty-one funds reached final close in the first quarter, securing almost $17 billion in commitments — close to many quarterly totals over the last five years. The first quarter of 2020 was "unusually blockbuster," a separate news release said, with $39 billion committed to 26 funds. Preqin also said six of the funds closed at more than $1 billion each in the first quarter, highlighting investor demand.
A record 286 funds were looking to raise a combined $235 billion as of April, with four of the funds seeking at least $10 billion in commitments.
For private equity, a strong recovery followed a challenging 2020, Preqin said in another news release. Assets under management surpassed a record $5 trillion in September, thanks in part to rising valuations in private and public markets.
Fundraising activity returned to — and even surpassed — pre-pandemic levels in the first quarter, with $188 billion raised among 452 funds vs. $163 billion by 431 funds in the same quarter of 2020.
Managers are sitting on a record $1.6 trillion in dry powder, which Preqin said is putting increasing pressure on deal-makers to find investment opportunities as the recovery gathers speed.
"Adoption of existing technological trends has been accelerated by the pandemic and investors are willing to bid up valuations of companies on the right side of this change — many of which are still in receipt of venture capital financing," Cameron Joyce, private equity spokesman, said in the release.
Venture capital deals are also surging, Preqin said, with a total deal value of $126 billion in the first quarter, up 114% vs. the same quarter 2020 and the highest level over the past five years.