The Middle East is the new global hotspot for alternative investments with real estate leading the pack, according to a new report analysing the investment preferences of regional institutions.

Preqin, a leading alternative assets data provider, found that investors are ditching underperformers like hedge funds and flocking to the Middle East, which skyrocketed from a 37.9 per cent favourite for emerging markets in 2022 to a whopping 65.5pc in 2024.

The survey, conducted across 2022, 2023 and 2024, reveals a strong appetite for alternative investments, particularly real estate, along with a shift in regional and asset class focus.

Middle Eastern institutions continue to hold a higher allocation to alternatives compared to their global counterparts. Family offices, a significant force in the region’s investment landscape, heavily utilise alternative assets like private equity. In 2024, nearly a third (31pc) of respondents reported holding 41-60pc of their assets under management (AUM) in alternatives, a trend consistent over the three-year period.

While alternatives remain popular, the composition of portfolios has changed. Real estate emerged as a favourite, with the percentage of investors allocating 20pc or more of AUM to the asset class doubling since 2022.

This surge saw real estate claim nearly half of the survey group in 2024, compared to less than a quarter in 2022. Private equity retained investor interest, though allocations dipped slightly from 47.8pc in 2022 to 36.7pc in 2024.

Hedge funds and venture capital (VC) witnessed a decline in popularity. This can be partly attributed to underperformance relative to expectations. In 2022, both asset classes met client expectations, but by 2024, a significantly higher proportion of investors reported disappointment. However, VC showed signs of improvement, with the percentage of satisfied clients rising from 41.7pc to 64pc between 2022 and 2024.

Real estate consistently exceeded investor expectations throughout the survey period. Conversely, private debt saw the most significant improvement, with investor satisfaction jumping from 30pc in 2022 to 85.7pc in 2024.

While Europe and North America remain dominant destinations for Middle Eastern investments, a shift towards regional diversification is evident. The number of respondents with no exposure to Middle Eastern assets fell from 20pc in 2022 to just 7.1pc in 2024. Notably, there’s a growing interest in allocating a larger portion (41-80pc) to the region.

The Middle East is now seen as the most promising emerging market in the near future. Conversely, sentiment towards China and Southeast Asia has cooled considerably.

Saudi Arabia emerged as the most attractive market within the Middle East, with 96.5pc of respondents in 2024 selecting it for potential investment. The UAE also garnered significant interest (41.4pc).

The lack of clear exit strategies remains the primary concern for investors, highlighted by over 70pc of respondents across all three years. Additionally, the absence of clear regulations and policy objectives was cited as an obstacle by an increasing number of investors (62.1pc in 2024).

Encouragingly, the survey found a declining concern regarding market transparency, suggesting improvements in this area. Additionally, a growing number of investors (41.4pc in 2024) seek co-investment with foreign capital.

The role of ESG (environmental, social, and governance) factors continues to be a point of debate. While over half of respondents wouldn’t necessarily avoid an attractive investment due to ESG concerns, a significant portion (nearly half) expressed a willingness to do so.

 

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