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Alternatives

Investors eye more private equity investments than hedge funds in next 3 years – survey

More institutional investors plan to allocate more to private equity than to hedge funds over the next three years, said respondents in Ernst & Young's 2018 Global Alternative Fund Survey.

Among the 65 investors — pension funds, endowments, foundations and funds of funds with a total of more than $2.7 trillion in assets — 21% expect to decrease their hedge fund allocations, while only 7% plan to increase them, according to a report on the survey, "At the Tipping Point," released Monday. Meanwhile, 34% of investors plan to increase their private equity investments over the next three years, while just 9% expect to cut those allocations.

Seventy-two percent of institutional investors plan on maintaining their current hedge fund allocations, according to the survey report, while 57% plan to keep their private equity allocations unchanged.

Among the 102 hedge fund managers and 103 private equity managers surveyed, a combined 57% said asset growth was their top strategic priority, while 25% said talent management was their top priority.

Additionally, 77% of hedge fund and private equity managers said asset growth was among their top three strategic priorities, with 60% saying talent management and 41% saying cost management or rationalization.

According to the report, hedge fund managers are looking for workers with new skill sets in data and analytics, while private equity firms are focused on the gender and cultural diversity of their workforce given the "people-first mentality of deal-making."

But hedge funds are more likely to use artificial intelligence, according to the survey, with 74% of private equity managers saying they have no intention of using AI, compared to 40% of hedge funds.

"Today's alternatives industry is dramatically different from just a decade ago, and the pace of change being caused by these disruptive factors is only going to continue to grow exponentially," said the report's executive summary. "Managers with the foresight to get out ahead of the curve are finding that navigating this new landscape has been less stressful than (for) those managers who have not been as innovative and forward-thinking.

Managers surveyed for the report managed a total of $3.3 trillion in assets. The survey was conducted from July through September.