Preqin, a research and data firm, and Amundi, an asset manager, have examined how the fund industry has developed across key sectors and asset classes, exploring current trends in 13 major European markets, with in-depth coverage of 6 key markets.
Looking specifically at country developments, 2020 was the year in which Luxembourg overtook the UK as the most popular domicile for European private equity and venture capital funds. However, the UK remains the largest European centre for alternative investment management.
Otherwise, the key takeaway from the 2021 edition of the European Alternative Assets Report, released on 15 September, is that the level of assets under management in Europe is flying high.
Record level of assets under management
At the end of 2020, they reached €2,060 billion, up 13.6% from €1,810 billion a year earlier. Private equity and venture capital confirmed their position as the leading alternative asset class in Europe with €866 billion in assets under management, ahead of hedge funds (€581 billion).
And 2021 should confirm this trend: private equity activity got off to a strong start this year, with €236 billion of deals recorded in the first half of the year, representing 83% of the €284 billion total for the year 2020. With €159 billion of capital raised by European-based private equity fund managers in the first six months, 2021 is set to be a record year for fundraising.
Hedge funds have also performed well, minimising losses in the face of falling markets in the first half of 2020 and rebounding faster than equity markets as "market dislocations resulting from an uneven global recovery create opportunities". After several years of net outflows from this asset class, net flows turned positive in the second half of 2020 and stabilised in 2021.
Progress also for private debt products: the median target allocation of European investors has increased in recent years to 5.2%. With the actual median allocation at 4%, all indications are that allocations to this asset class will continue to grow until the target allocation is reached. European private debt outstanding amounted to €183 billion at 31 December 2020.
There were €87 billion worth of transactions in the first half of 2021, almost the same level as in 2020. "Infrastructure growth has seen its share of private market outstandings in Europe rise from 13% in 2011 to 17% in 2020, at nearly €250 billion. Renewable energy strategies dominate the pipeline by number, but telecoms have increased their share of total deal value in recent years."
Finally, the number of real estate transactions and the total value of transactions decreased in 2020. The end of the pandemic should boost investment. Post-pandemic working patterns could allow investment in office refurbishment projects to outweigh new development, the study says, with commercial and hotel stocks likely to return to the forefront through 2021 and 2022.
In the face of uncertainty and falling yields in all traditional asset classes, alternative assets remain attractive and are also innovative investment opportunities in green finance.
This momentum is set to continue, according to Mark O’Hare, founder and CEO of Preqin, who believes that "as the European economies are on the road to post-pandemic recovery, they are likely to reach new growth records in 2021. Our discussions with Europe-focused investors confirm that they are maintaining their allocations to alternative assets. In the face of uncertainty and declining returns in all traditional asset classes, alternative assets remain attractive and are also innovative investment opportunities in green finance.”
Other advantages noted: real assets have the advantage of offering protection against inflation and the prospect of higher returns. “They can also help а meet the challenges posed by the post-covid economic recovery and meet investors' expectations in terms of performance and impact, notably by helping allocate capital to projects related to the energy transition," adds Dominique Carrel-Billiard, head of real assets at Amundi. European fund managers are world leaders in the adoption of ESG, with 80% of assets under ESG commitments, compared to only 47% in North America and 24% in Asia.
Originally published in French by Paperjam and translated for Delano.