LONDON—The alternative assets sector has reached record proportions, with US$7.8 trillion in assets under management worldwide at the end of 2016, Preqin said Tuesday. The analytics firm said that private capital funds, including real estate funds, have outperformed their public-market counterparts over the past five years.

In examining the median returns reported by public pension funds, Preqin finds that over the five years ending this past Dec. 31 private equity funds have generated a median net annualized return of 11.4%, while real estate funds have returned 11.3%. By comparison, hedge funds have generated a median net annualized return of 5.2% over the same time period, and listed equity has seen median annual returns of 9.1%.

In fact, says Preqin, private equity funds have seen median net IRRs of greater than 10% for every vintage year since 2007, while real estate fund median net IRRs have surpassed 14% in every vintage year from 2009 on. 2013 in particular saw real estate funds' median net IRRs reach 14.8%.

Real estate funds represent the second largest private capital fund class in terms of AUM, at US$785 billion globally at the end of '16, the most recent year for which data are available. Leading this class is private equity funds at US$2.58 trillion, with real estate funds trailed by private debt (US $605 billion), natural resources (US$501 billion) and infrastructure (US $388 billion) funds. Hedge funds, despite net investor outflows throughout the year, ended '16 with a record US$3.25 trillion in AUM.

The majority of investors told Preqin this past June that they were satisfied with the performance of their investments across most asset classes. However, opinions diverge by asset class, with more than a fifth of investors in private equity, real estate, private debt and infrastructure saying that these asset classes had surpassed their performance expectations over the three years between June 2014 and June of this year. Conversely, across the same period 50% of natural resources investors and 70% of hedge fund investors felt that their portfolios had underperformed.

Instant Insights /

Alternative Assets Funds Set Record in AUM

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