Navigating investment opportunity as tide turns towards alternatives

Navigating investment opportunity as tide turns towards alternatives
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This is a sponsored article from BlackRock.

What started as a trickle has turned into a flow, with the current forging towards alternative investments swelling in volume and velocity in recent years as investors seek diversification in a particularly volatile global economic environment.

BlackRock, the world’s largest asset manager¹ with more than 30 years of expertise in alternatives investing, has closely charted the rising tide of the asset class. According to recent Preqin data, the alternative investment industry is expected to grow by 40% from the current US$10 trillion to US$14 trillion by 2023 globally2. In fact, global pensions have increased their exposure to the asset class from 4% in 1997 to 24% within two decades3.

That upward trend has influenced all investor segments, including high net worth individuals.

Charting an alternative course
A number of CEOs of private banks in Asia recently told Asian Private Banker that alternative investments are constantly becoming a preference among the region’s wealthy who want to diversify their portfolios using uncorrelated assets. Private equity and real estate are proving particularly popular amid a maturing investor segment.

Institutions are also moving decisively out of equities and into alternatives — led by investments in real assets, private equity, and real estate. Indeed, over the longer term, studies indicate that more than 50% of institutional investors intend to increase exposure to private debt, infrastructure, and private equity, while 32% intend to allocate more to real estate.4

Avoiding choppy waters
Alternatives have become more prominent since 2016 against a backdrop of interest rate rises, monetary tightening, and increased market volatility, which has made investors focus on building increasingly well-diversified portfolios.

Alternative strategies have become accessible to a broad range of investors, not just ultra high net worth individuals and large institutions. Alternative investments can be an integral part of nearly every investor’s portfolio and are most effectively deployed as a complementary element of a traditional portfolio, seeking to deliver valuable diversification and provide a cushion against market volatility — for example, helping reduce a portfolio’s interest rate risk — while improving its overall risk-return profile and income.

The considerable maturation of the alternatives market in recent years has led to a significant broadening of options for investors, giving clients greater opportunity to achieve portfolio diversification and enhance returns using public and private market strategies. These include:

  • Hedge funds: pools of investment capital with the flexibility to employ a vast range of trading strategies to seek out market inefficiencies and focus on idiosyncratic risk to generate absolute returns irrespective of market conditions. Depending on the structure, they can have varying liquidity profiles.
  • Private equity: involves direct investment in private companies or buyouts of public companies, and can provide a spectrum of opportunity by spanning all stages of a company’s life cycle — including venture capital, growth periods, buyout and restructuring.
  • Private credit: offers a yield premium over traditional credit due to illiquidity or complexity.
  • Real assets: such as real estate and infrastructure, can be a strong generator of immediate cash flow and offer the potential for growth and capital gains.

These strategies can be used to achieve various desired outcomes as shown below5:

Figuring out the right mix of alternative investments is a challenge for all investors. Which type of alternative investments deserve a spot in the portfolio largely comes down to risk appetite. Investors should also carefully consider their investment objectives when deciding which alternatives strategy to employ. Other factors to consider include the desired liquidity of their holdings, return characteristics and structure of the investment, and crucially, the ability of the investment manager to add significant value to their portfolio over time.

A rising tide of investment options
The flow towards alternatives has seen a sea change in attitudes among Asian investors, drawing them away from the once-considered-safer waters of traditional investments into more diversified portfolios that can steer an alternative course beyond the riptides of a turbulent global economy.

The global reach of BlackRock provides access to opportunities that may not be available to other asset managers and offers valuable investment insight into these asset classes.

BlackRock has more than 750 alternatives specialists spanning more than 25 global locations6 and provides clients with one-stop-shop access to the sector, offering investors strong sourcing, differentiated performance, and a greater breadth of solutions at a time when alternative investments are reshaping investment horizons at an unprecedented rate.

To find out more about alternative investing and how BlackRock can help you navigate the alternative investment universe:

For Hong Kong readers, click here.

For Singapore readers, click here.

Later in this series, BlackRock will discuss uncovering alpha using public market strategies as well as why investors should increase exposure to private credit over traditional asset classes.

BlackRock

1 Source: Pensions & Investments, June 2018. As at 31 December 2018, BlackRock’s AUM totalled US$5.98 trillion.
2 Source: Preqin: ‘Alternatives in 2019’ report, as of December 2018. For illustrative purpose only. There is no guarantee that any forecast made will come to pass.
3 Source: Willis Towers Watson, Global Pension Assets Study 2018. As of December 2017.
4 Source: Preqin Investor Outlook: Alternative Assets H1 2018.
5 Source: BlackRock, September 2018
6 Source: BlackRock, as of December 2018.

Disclaimer:
In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

In Singapore, this information is issued by BlackRock (Singapore) Limited (company registration number: 200010143N). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.This material is provided by BlackRock and is intended solely for informational or educational purposes.

This material and the information provided herein must not be relied upon as a forecast, research, investment or financial product advice and is not intended to be (in any manner) a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 2019 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is not intended to constitute financial, tax, legal or accounting advice. You should consult your own advisers on such matters. BlackRock does not guarantee the suitability or potential value of any particular investment. Investment involves risk including possible loss of principal. Past performance is not an indication for the future performance. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

©2019 BlackRock, Inc. All Rights Reserved. BLACKROCK is a registered trademark of BlackRock, Inc. All other trademarks are those of their respective owners. (MKTGH0419A-800122-4/4)

This is a sponsored article from BlackRock.

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