Alts allocations by LPs to rise along with use of AI, survey reveals

Limited partners and asset allocators appear wary of more volatile asset classes.

Alternative assets remain a key component of the investment decisions of limited partners according to a new survey.

Almost all (93%) of respondents said they plan to either maintain or increase their allocations to alts in the next 12 months, with more than half falling in the ‘increase’ group with a slight rise compared to 2022’s survey.

Almost 9 in 10 of the global LPs and asset allocators polled by fintech firm Dynamo Software and Northfield Information Services indicated their intention to use fund managers for their investments in alternatives, up from around three quarters in 2022.

Perhaps wary of more volatile asset classes, the research also found that investors are pulling back from cryptocurrencies with just 3% considering allocations to the digital assets compared to 13% a year ago.

“The pullback in crypto is understandable given the rapidly changing regulatory environment, the failing of notable players and remaining questions about the market’s medium-term development,” observed Dynamo CEO Hank Boughner.

SECONDARIES MARKET

A key trend identified in the survey is interest in the secondaries market.

More than a third (36%) of respondents said they are considering allocations to secondaries, up 6 percentage points from last year.

“Over the past 10+ years, the secondaries market has been on an upward trajectory thanks to a range of trends from overall exposure to market perception,” said Boughner.

He said that LPs are choosing to alter their exposures by selling positions to other investors.

“The secondaries market has become more transparent and ‘liquid’ in the sense that active investors are looking to come into an existing GP fund, for example,” he said. “The ‘new’ LP can then take over the position, gaining the benefit of time along the investment curve. Additionally, sellers in the secondaries market often face time or allocation pressures that force a move in portfolio assets.”

TECHNOLOGY FOCUS

Investors remain keen to allocate to technology investments with AI, edge computing and native clouds, and automation and hyper-automation among areas they want to see fund managers investing.

When it comes to their own use of technology, 93% plan to maintain or increase budgets and indicated that they are keen to free their workforce from mundane tasks such as research, portfolio analysis, and document/data management.

“Predictions of sentient AI and out-of-control quantum computers get all the headlines, but the real story of technology is its impact on the everyday experience of people, including those doing work they love,” said Boughner. “The decisions LPs and asset allocators make are very meaningful. From impact investing to job creation, their strategic moves will only become more relevant and purposeful when they mitigate the risk of errors and improve accuracy through tech automation. Greater relevance and greater purpose breeds happier employees who are committed for the long-term.”