Appeal of private debt relatively modest, says Intralinks

Allocators place it fourth out of seven alternative asset classes by a number of metrics.

Private debt ranks fourth out of seven alternative asset classes, according to a survey of investor allocators released earlier this month by SS&C Intralinks LP.

The survey of 200 global investors asked respondents to rank seven alternative investment asset classes, from a variety of standpoints. Their preferences in descending order, with minor variations, were: private equity, hedge funds, venture capital, private debt, commodities, real estate and infrastructure.

The survey asked respondents, “on an absolute basis, which asset class do you expect to be overweighted?” Private equity received 29 percent of the optimistic votes; hedge funds, 21 percent; and venture capital, 14 percent. Private debt comes in fourth with 13 percent, though it performs better than real estate, commodities and infrastructure (10, 7 and 6 percent, respectively).

Likewise, only 10 percent of investors surveyed ranked private debt as the asset class (over the past 12 months) that generated the best risk-adjusted returns. That is the same share that gave commodities and real estate the highest rank. It is a good deal less than the number of LPs for whom private equity did best (36 percent), or venture capital (18 percent) or hedge funds (16 percent). They all surpass infrastructure funds, bringing up the rear with 6 percent.

Emerging managers

The report devotes some time especially to the views investors have of emerging managers, and those views are rather dim of late. Intralinks cites Fiona Anderson Wheeler, head of investor relations at BC Partners, who said people “are having to make some very difficult choices and are prioritizing re-ups with proven managers who have long track records, in lieu of new relationships”.

Among those who did indicate that they are looking at emerging managers, the main drivers of allocations are the niche strategy options and the attractive return potential. The largest percentage, 33, said they are interested in such managers within private equity. Only 10 percent of allocators preferred the emerging managers of private debt. That put it, as always, fourth in order of preference.

Managers of all classes may take some comfort from the fact that the alternatives tide is rising. More than 70 percent of investors said that they expected to increase their allocations to alternatives over the next 12 months, with just over 29 percent saying they would not.

More than a third of the investors surveyed are located in North America, another third in EMEA.

The survey included a wide range of types of investor: 29 percent bank or wealth managers; 26 percent family offices; and 18 percent pensions.

Intralinks, a provider of inter-enterprise content management, was founded in 1996 and it has been a subsidiary of SS&C since 2018.

A different approach

In another recent survey, Nuveen uses a larger respondent base, takes a somewhat different approach and reaches distinct conclusions on the preferences of alternatives allocators. It discussed allocation with 800 global institutional investors, each with at least $500 million in assets, for its third annual Equilibrium Global Institutional Investor Survey.

Nuveen finds that infrastructure is the “most picked choice for inflation-risk mitigation and infrastructure debt was the top choice for allocations to alternative credit”.

It also finds that, setting infrastructure aside, 52 percent of investors are planning to increase allocations to private equity, 47 percent for private credit, 43 percent for real estate and 18 percent for both timber and farmland.