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LPs look to up PE, infra allocations, digital asset appetite booms

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Professional investors are looking to up their commitments to private equity, infrastructure and digital assets this year as they look to take advantage of illiquid asset returns, new research shows.

Seward & Kissel’s latest Alternative Investment Allocator Survey showed 44% of respondents looking to increase their infra allocations, while 41% cited private equity and digital assets.

Daniel Bresler, one of Seward & Kissel’s newest investment, management partners, was unsurprised by the emergence of digital assets as an asset class.

He said, “While the increase in interest year-over-year by investors for digital assets is dramatic, as outlined in the survey, we are not surprised by these findings as many of our existing clients have expressed interest in exposure to digital assets, either as a direct investment in cryptocurrencies or as private investments in the digital asset ecosystem.

“We have seen this both through new, emerging managers and through offerings by existing advisers.”

Private debt, private equity real estate and hedge fund equities were also strategies that participants indicated an increased interest in, each above 30%.

One-third of the survey participants were high net worth individuals or family offices (33%), 27% funds of funds, and 10% each of endowments, foundations and non-profits, investment consultants and seeders.

The report said endowments, foundations or non-profits participants expeced to increase allocations to digital asset strategies the most in 2022, while HNWI/family office participants expected to increase allocations to primarily illiquid strategies, including
infrastructure, private equity, private debt, private equity real estate as well as digital assets.

Investment consultants/OCIO participants expect to increase allocations to infrastructure strategies and hedge fund equity strategies, it added.

Favourable fees were the most commonly sought-after term by allocators at 62%. However, most favored nations clauses (MFNs), co-investment rights and transparency/reporting rights were also frequently requested from every investor group, with more than 40% of participants indicating as such.

When sourcing investment managers for potential allocations, investment process (93%) was overwhelmingly identified as “very important”, followed by performance (41%) and then pedigree (28%).

The length of a manager’s track record followed closely, with 21% of participants identifying this as ‘very important’.

An overwhelming majority of the survey participants (73%) indicated that their organizations invest in alternative investment managers founded less than two years ago, down slightly from 2021 (80%).

When looking at specific investor groups, at least 60% of participants from each investor group indicated that their organizations allocate to emerging managers, with seeders the most active followed by funds-of-funds.

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