Selectivity is Required
With most asset classes performing well, and correlations between conventional asset classes remaining high, many investors are seeking the diversification benefits and higher returns offered by alternative assets. PwC/ALFI notes a significant reallocation towards alternative assets by global pension funds over recent years, with US funds now having a 30% weight in 'Alts'. Blackstone raised a record $26 billion for its latest buyout fund, which illustrates the demand. Whether a speculative bubble is starting to build in the alternatives space or whether indeed, they offer much in the way of diversification benefit, leaves opinion divided.
Leading market participants offer their views on the prospects for alternative assets in 2020. Commentaries and insights are provided for a wide range of alternatives, including gold, infrastructure, commercial property and both the private equity and debt markets.
Alternatives Outlook and Industry
In the second annual edition of their Global Alternatives Outlook, JP Morgan AM draws upon the insights of 700 alternatives professionals. They illustrate how asset allocation to alternatives can assist in building more resilient portfolios, while also reducing risk and feeding investor demand for both income and alpha.
Wellington Management shares their views on the prospects for alternative assets in 2020.
EY notes a changing and challenging competitive landscape for alternative funds, particularly hedge funds, as technological advancements have 'democratised' what once was the preserve of institutions, family offices and HNWIs.
James Redgrave, State Street's Head of EMEA Insights outlines the themes identified in a survey of over 200 alternative asset managers and identifies the implications it may have for business models, strategies and relationships with clients.
Prequin's detailed report assesses the size, shape and composition of the global alternatives industry in 2023.
For compliance reasons, this paper is only accessible in the United States and Canada
AGF Investments' team discusses the growing influence of alternatives in investment portfolios.
JP Morgan AM discusses the role provided by traditional safe-haven assets, such as bonds, currencies and gold, and wonders if alternative assets, e.g. infrastructure or private core real estate might fulfil a similar function.
Real Estate Outlook
FTSE Russell demonstrates, through analysis of the FTSE EPRA Nareit Global Real Estate Index Series, the extent to which the key characteristics of yield, diversification and inflation hedge, which attract investors to listed real estate, are observed.
Savills remains sanguine about the prospects for commercial real estate, arguing that the 'lower for longer' interest rate environment offers some support in a market looking for both yield and diversification opportunities.
PGIM Real Estate's analysts offer their insights for commercial real estate in 2020, noting that four key global trends are likely to provide a broadly consistent backdrop for most major markets.
FTSE Russell explores the US MBS market from the perspective of a foreign investor, noting that despite some attractive features, foreign investors only hold a modest share of the market.
For compliance reasons, this paper is only accessible in certain geographies
M&G Investments investigates the investment case for leveraged loans, the key differences between the US and European markets, and suggests why it believes investors should consider a holding in European loans as part of a diversified portfolio.
Gold and Commodity Investments
PGIM Institutional Advisory & Solutions takes a long hard look at gold, the role it plays in institutional portfolios as initially, a hedge against various economic woes, and as a diversification agent against other financial assets.
S&P Dow Jones Indices investigates the properties of commodities as an asset class, and their traditional use in investment portfolios as diversifiers and inflation protection. They argue for alternative uses, including as a route to expressing a particular investment theme, as tactical trading tools, and as a component of a multi-asset risk premia allocation.
Callan's report into the various uses of gold by institutional investors finds that for some, it acts a long term store of value and short-term hedging tool. For others with higher risk tolerances, an allocation is questionable at best.
UBS AM outlines three key themes prevalent in both the European and US infrastructure markets. Demand for low carbon investments is increasing and digital infrastructure offers opportunities with the advent of 5G and the essentiality of connectivity. At the same time, a turn against fossil fuel industries may dent prospects in the aviation and oil and gas sectors.
Investing in Private Equity
The authors note that in private equity funds raised between 1991 and 2011 the variance of performance is higher than would be expected by chance, implying that some investors consistently outperform, with results stronger for venture funds at the early period of the sample.
Nicholas Rabener sounds a cautious note for those looking to allocate further funds to the asset class.
Probitas Partners investigates the state of private equity investing around the globe.
This academic paper looks at the performance of alternative investment vehicles in private equity limited partnerships over four decades and finds a differential performance between those vehicles that are GP directed and those where the LP has some discretion. Some light is shed on the bargaining position of the respective parties.