Three Key Trends in Alternative Investments for 2023

High-net-worth investors (HNWIs) are moving increasingly beyond the traditional portfolio and warming to more alternative asset allocations. The group is moving away from the traditional 60/40 portfolio to a 50/30/20 model, which includes alternative investments. But even as this group has been moving more to alternative assets, aggregate allocation numbers show that they are still not fully invested. Single family offices have the highest average private equity policy target allocation of about 28.8% of total assets yet remain just under with their average actual allocation of 27%.

Likewise, multi-family offices remained under-allocated by 3.5 percentage points (14.6% target), while wealth managers were slightly under their 17.9% average target. We see this continuing for the next decade, making it a robust long-term opportunity for the entire investment management industry. However, this is not the only trend we have observed, and the following are others that we think will continue throughout 2023 and into 2024.

“As infrastructure improves and operational solutions develop, enterprise technologies will provide opportunities to consolidate fund-investment operations and yield full- service platforms that serve LPs, GPs, and service providers throughout the investment lifecycle.”

Private debt

LP allocation to private debt managers has accelerated over the past five years with year-over-year increases in fund raising and we feel this will continue. On average, private debt fundraising grew 10% annually over the five years ending 2022 when funds secured more than $208bn in capital commitments. Furthermore, a look at Preqin’s most recent investor survey, shows that 63% of institutional investors polled said they intend on increasing their long- term private debt allocations. That’s more than private equity (47%) and just ahead of infrastructure (58%). Within private debt, demand remains healthy for sponsor-backed, middle-market investment opportunities. We’ve seen increased interest in niche opportunities. The healthcare and biotech deal markets have been very active, offering higher-quality assets and attractive pricing. We expect these exposures to attract a higher portion of allocations than in the past.

Rafay Farooqui is the Founder and CEO of +SUBSCRIBE, a leading enterprise software company that is powering alternative investments for institutional allocators, sponsors, and service providers. Prior to SUBSCRIBE, in 2009 Rafay co-founded CAIS, a fintech company offering a menu of curated alternative investment funds to wealth management firms.

+SUBSCRIBE, the leading order management system for alternative product transactions, allows any LP, GP, or SP to compliantly mobilize and digitize their investor onboarding processes and fund subscription documents in minutes. This technology ushers in the digital transformation of the private markets, and leads the pack of E-SubDoc platforms available in the market today by transacting billions of dollars’ worth of subscriptions. It serves over 4,000 institutional LPs, 700 GPs, and 4,000 of their fund offerings, and is integrated with over 400 service providers, from law firms and fund administrators to capital introduction and placement agents, among others.