Alternative assets may be a comparatively new player in the investment field, but experts are saying they’re only likely to rise in importance through 2020 as the markets move away from bonds and equity funds. So far it’s mostly the larger investors leading the pack, but as more regulations and structure come to fruition, a wider variety of investors can get in on the fun.
With the rise in popularity for alternative assets, there’s been a corresponding rise in firms developed to help investors deal with them. Marc Lipschultz’s Owl Rock, for example, brings together experts formerly involved with GSO/Blackstone, KKR, and Goldman Sachs to advise on alternative asset management for underserved middle market companies across many different industries.
And they’ll have plenty to manage in the coming years. Over in the real estate industry, institutional investors, such as pension funds, are moving away from the typical core asset funds and increasingly investing in alternative assets. Hospitality, senior housing, and student housing—once considered quite alternative, indeed—are becoming bigger investment targets. The hope is that these new investments will lead to bigger returns as the top 10 markets in the US decline.
“Alternatives present that opportunity for generating alpha (returns) in a diversified real estate portfolio,” says James Martha, portfolio manager for TH Real Estate. “And at this point in the cycle, there is certainly increasing demand.”
These alternative assets also provide a good opportunity for diversification in an uncertain market.
Of course, the real estate market isn’t just jumping in blind. They’re definitely still on the learning curve and investing conservatively at this point. Still, as big names like Blackstone increasingly invest in alternative assets, others in the real estate market are following suit.
According to Convergence’s Q4 2016 update on the Alternative Asset Management Industry, the outlook is only going to get rosier. By measuring the overall health of the industry via observing changes in 17,500 advisers, 53,000 private funds, and more than 6,000 service providers, Convergence has concluded that the alternatives industry is definitely on the rise, thanks to an increase in both investments and the hiring of advisers and managers. These moves were likely meant to counteract the negative sentiment attached to hedge funds, with investors focusing more on private equity, real estate, and venture capital during Q4.
So what will the future of alternative assets bring? PwC research on alternatives in Europe suggests that assets will rise from $900bn in 2015 to $8.1trn by 2020, with Europe as a key area for growth as more investors look for replacements for bond and equity funds.
Alternative assets are definitely in, and both investors and managers stand to benefit greatly in the years to come.