Global alternatives market set to reach $24.5T, private credit AUM to double

Analysts forecast an $8 trillion surge in the next five years.

Growing demand for alternative assets will add more than $8 trillion to assets under management in the next five years, to a total $24.5 trillion, according to a new report.

According to the forecast from industry analysts Preqin, the global alternative assets market will grow at an annualized growth rate of 8% between 2022-2028.

Among the key takeaways from the report, global private debt AUM is forecast to double its 2022 total of $1.5 trillion to a new record high of $2.8 trillion, a compound annual growth rate of 11%.

“Private debt performance is expected to be stronger than in the past, thanks in part to a positive outlook for distressed debt strategies. For 2016 to 2022, its internal rate of return was 9.11%, a figure forecast to rise to an average 9.81%, from 2022 to 2028,” the report states.

North America has a significant role to play in the growth for private debt with AUM growing from $1.0tn in 2023 to $1.7tn by the end of 2028.

The Future of Alternatives 2028 report also forecasts that global private capital fundraising is set to reach $1.49tn by 2028, from $1.32tn in 2022.

VENTURE CAPITAL WEAK

Venture capital, especially funds targeting North America, has a weakened outlook according to Preqin with CAGR of 14%, compared to the 19% it was forecasting a year ago.

Its new forecast AUM for 2027 is $3.5tn, revised down from $4.2tn as cited in its October 2022 forecast. Although North America will lead growth worldwide, it will be at a slower pace than previously expected.

“Geopolitical risks and rising long-term bond yields are two of the factors behind more moderate fundraising activity and performance expectations,” said Cameron Joyce, SVP, head of private equity, at Preqin. “In spite of these challenges, the industry is expected to show solid growth until 2028, thanks to a gradual recovery in fundraising activity. Softer investor sentiment is creating opportunities in direct lending, secondaries, and real assets in particular. The longer-term fundamentals behind the growth of the private markets remain broadly intact, while the market continues to evolve rapidly.”

OTHER KEY FINDINGS

The report also includes:

Private equity:The forecast for total global private equity AUM is to reach $8.5tn by the end of 2028, from $4.8tn in 2022. This represents a 10% compound growth rate, from 2022 to 2028. At the same time, performance is expected to slow to 12.6% over the forecast period compared to 16% during the 2016 to 2022 period.
Secondaries market:As financial markets move into a new phase of higher interest rates and heightened economic and geopolitical uncertainty, demand for portfolio liquidity has increased. Secondaries funds are poised to perform well in this environment, given the opportunities to purchase fund interests at fair value.
Private debt: Distressed debt performance is forecast to witness the largest increase, from 7% from 2016 to 2022, to 14% from 2022 to 2028. The performance of other strategies within the asset class is forecast to see limited changes.
Infrastructure:Against the backdrop of a slow infrastructure fundraising market in the first half of 2023, Preqin forecasts global infrastructure AUM will reach $1.7tn by the end of 2028.
Real estate:Global private real estate AUM is forecasted to reach $2.2tn by the end of 2028, from $1.6tn in 2022, an annualized growth rate of 6% over the period. This rate is lower than the double-digit annualized growth between 2016 to 2022, as real estate investments are expected to be hampered by concerns over heightened interest rate, uncertain office demand, and lingering spreads in asset pricing.
Hedge funds: Global hedge funds AUM is expected to increase to $5.2tn by 2028, from $4.2tn in 2022. This represents a relatively modest 3.6% annualized growth rate over the forecast period.