Global alternative assets under management are expected to balloon to more than US$23 trillion by 2025, according to U.K.-based alternative data analytics company Preqin.

At the end of 2020, global alternative assets stood at US$12.5 trillion, said Shifra Ansonoff, Preqin’s global head of research and data operations, speaking Tuesday at a webinar hosted by Toronto-based Mackenzie Investments. That number is expected to grow at a compound annual growth rate of 13.7% until 2025, she said.

Diversification, a reliable income stream and risk-adjusted returns are the top three reasons investors are motivated to allocate funds to private capital, Ansonoff said.

“Increasingly, we are seeing alternative investment strategies shifting to the mainstream,” she said. “These strategies offer greater flexibility of investment mandates and the quest for more yield or income, as yield has been harder to obtain from traditional investment sources.” 

Private equity is showing the most growth and will account for nearly 70% of alternative AUM by 2025, Ansonoff said.

In Preqin’s June investor survey, 72% of institutional investors stated that they are already allocating funds to private equity — more than real estate (65%), natural resources (37%), infrastructure (36%), private debt (35%) and hedge funds (44%). Further, 90% said they plan to allocate the same or more capital to private equity in the next 12 months compared to the previous year.

Ansonoff noted that while the Asia-Pacific region is expected to have the largest absolute private equity AUM growth, percentage-wise, from 2020 to 2025, “North America remains the most attractive investment destination.”

Asia-Pacific is projected to see absolute private equity AUM growth of 244% over those years, compared to 80% for North America.

North America’s strong fundamentals and history of innovation “helped private capital to largely shake off the impact of the pandemic and source new opportunities,” she said.

“Innovation, which is exemplified by the booming venture capital market, is at the heart of alternative asset success,” Ansonoff said. “Fund managers will need innovative and more specialist approaches to stand out in a crowded fundraising market.”