European alternatives growth slow, but remains strong historically – Preqin reports

UK-based managers leading European private debt fundraising

LONDON, Sept. 06, 2023 (GLOBE NEWSWIRE) — Today, Preqin, the global leader in alternative assets data, tools, and insights, published its Alternatives in Europe 2023 report. The report shows the combined assets under management (AUM) of European alternatives stood at €2.95tn as of September 2022. Of this, the UK and Western Europe* both surpassed €1tn of private capital** AUM in 2022, though the UK’s share has fallen in recent years to reach a new low of 44% of the total at €1.04.

The Preqin report also predicts the compound annual growth rate (CAGR) for Europe-focused AUM in private capital to fall to 10.9% between 2021 and 2027. In contrast, the growth rate was 17.3% between 2018 and 2021. However, this rate is higher than that observed between 2010 and 2015, suggesting private capital remains on a higher growth path than in the years following the global financial crisis.

European private debt fundraising dominated by UK-based managers

Private debt is the only asset class on the right side of tighter credit markets given many funds exposure to higher rates through variable lending facilities, according to the Preqin report. The asset class is therefore providing an effective anchor for risk-based portfolio allocation strategies, delivering an 8.5% return against a standard deviation of 6.25%, for vintages between 2011 – 2020.

Fundraising to early June 2023 by private debt Europe-based fund managers was tracking at €9.6bn. This is almost entirely driven by UK-based funds, which despite accounting for only 53% of the 15 funds closed so far this year, secured 90% of the capital. This trend underlines the market’s continuing dominance in private debt in Europe.

Poor performance in hedge funds in the region undermines appeal

Meanwhile, hedge fund managers in Europe have failed to produce statistically significant alpha in aggregate. This is not to say there are not quality hedge fund managers in Europe. However, it does suggest that Europe has failed to remain competitive compared with North America and APAC.

Europe-based hedge fund AUM declined by 9% by the end of H1 2022. Preqin analysts predict that the region will grow by 1.97% on an annualized basis between the first half of 2022 and 2027, broadly in line with historical growth. High inflation and the European Central Bank’s rush to control higher prices through monetary policy suggests the region still faces recessionary risk, albeit delayed. Therefore, Preqin analysts expects a further decline in hedge fund AUM before a recovery is seen.

Alex Murray, VP, Head of Real Assets, Research Insights at Preqin, says, “Alternatives have become crucial for financing companies and investing in the built environment in Europe. Practices that emerged in the North America market have been embraced and adapted to suit the diverse requirements of European economies and institutional investors. The adaptability of alternatives will be no less crucial in the coming years, as risks emerge for Europe’s continued economic prosperity.”

Additional key findings from Preqin’s Alternatives in Europe 2023 report include:

• Fundraising: The pace of private capital fundraising has been much slower, with data to the beginning of June 2023 showing 149 Europe-based funds closing €97bn. This market slowdown reflects the fastest monetary tightening for decades.
• UK: While the UK’s share of total European private capital AUM has fallen, the UK’s proportion of European private debt AUM has remained steady at above 60% since 2017. However, its share of European private equity AUM dropped from 55% in 2017 to 44% by the end of Q3 2022.
• Luxembourg: Preqin data shows that Luxembourg increased its share of the domiciliary of European funds from 2010 to 2022, growing from 16% to 62%.
• Infrastructure: €1.24tn was raised by funds with exposure to cleantech and renewable energy globally between 2005 and early June 2023, 30% of which was by funds with Europe as the primary regional focus. Infrastructure funds have dominated fundraising by funds targeting North America and Europe at 61% and 68%, respectively.
• Real estate: In 2022, real estate fundraising picked up by 19% against the previous year, despite a 25% fall in numbers of funds closed, as residential and industrial sectors grew their share of the deals market. Fundraising for real estate to early June 2023 is showing some weakness, with core and debt strategies raising well below-trend amounts of capital.

For more information, and to receive a copy of the report, contact Mimi Celeste Taylor at mimiceleste.taylor@preqin.com     

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Notes to editors

* The countries included in ‘Europe’ is comprehensive, kindly get in touch if you would like the list. Western Europe includes: Alderney, Andorra, Austria, Belgium, France, Germany, Gibraltar, Guernsey, Ireland, Isle of Man, Italy, Jersey, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Portugal, San Marino, Spain, Switzerland.

** Private capital excludes hedge funds

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About Preqin 

Preqin, the Home of Alternatives™, empowers financial professionals who invest in or allocate to alternatives with essential data and insight to make confident decisions. It supports them throughout the entire investment lifecycle with critical information and leading analytics solutions. The company has pioneered rigorous methods of collecting private data for almost 20 years, enabling more than 200,000 professionals globally to streamline how they raise capital, source deals and investments, understand performance, and stay informed. For more information visit www.preqin.com.