Some leading analysts speak about Alternative investments
Coronavirus is a global emergency threatening to plunge the world economy into the deepest recession – at least since the 1930s. It has already led to the biggest sell-off across global markets since 2008.
So, are alternatives a good idea? Leading investment experts are quoted below on what they think. One clear message for investors: Strong risk management will be needed as they confront a crisis that is only just beginning.
See what they say about alternative investments.
Act Now! Diversify and protect your wealth! All leading experts agree.
“Demand for private assets will remain strong. It is not their absolute performance that makes them attractive, it is their performance relative to listed comparables. This premium is linked to their low liquidity but also to the alpha that is inherent to these asset classes (“active ownership” creates value).
Historically, this has been true throughout crises. On allocations, private market valuations will progressively adjust to the new environment. This will definitely provide good investment opportunities. That said, we have always advised our clients to invest stable amounts every year in these asset classes whatever the market conditions, in order to reduce their exposure to market cycles.”
“Alternative strategies have fulfilled their role as smart-diversifiers during the crisis. Hedge fund returns have been superior to equity markets in aggregate. Private equity has benefited from its longer-term funding model and lower interest rates, and cheap assets should spur activity.
Pockets of stress remain, however alternative risk premiums have improved dramatically over a short period of time. With significant discrepancy of returns across segments and managers, the immediate lessons learnt are that diversifying sectors is key along with careful selection of managers and funds.”
“Yield will be even more scarce given current central bank actions, and so the hunt for yield will further intensify. Investors will need to diversify their income-producing portfolios to include a broader mix of yield-producing asset classes beyond traditional fixed income. That should include dividend-paying stocks, infrastructure and real estate investment trusts.”
“Private equity funds have a significant cash balance, which ought to provide a cushion as well as serve as dry powder for dislocated or stressed sectors. While the illiquidity is a consideration, many investors will view such assets as a long-term holding, rather than a ready source of liquidity.
Some parts of alternatives, such as infrastructure, are offering a stable source of income, which could prove quite resilient through a period of market weakness.”
“Alternatives such as infrastructure, real estate, farmland, timberland and forestry provide the opportunity to invest in real assets that should survive the pandemic.
These assets are less correlated to equity markets. However, they have also suffered during the recent equity market sell-off, so we see them as a potential “defensive” recovery story, especially since they tend to perform well when interest rates are low.”