The Argument for Alternative Investments
Over the last month, the UK’s financial ecosystem has gone into a negative spiral of worry and panic. The Pound is virtually at parity with the US Dollar (although now recovered slightly), interest rates are climbing on an almost daily basis and inflation is still way too high. Yet according to the Financial Times, Growth investors remain optimistic!
But why is this?
Over the last year we have seen huge volatility in the markets, driven by a slow and unpredictable recovery from the global Covid-19 pandemic, political instability in Europe with the ongoing Ukrainian conflict and US and China trade war and the resulting global rise in energy prices!
However, with this, many investors have sold off market driven assets and are sitting on cash! Cash that is potentially going to grow with the rise of interest rates, but cash that is readily available and not being utilised for growth.
Take all these factors into consideration and what we are seeing is a growing appetite and desire for impact investing? And this is not just with a view to good PR and short term gain! What we are seeing is more demand for long term investment assets that tick a number of boxes from steady yields through to reducing global carbon emissions.
And this in turn has led to an increased demand for Alternative investment opportunities. Alternative assets stray outside mainstream portfolios of stocks and bonds into asset classes such as credit, carbon net zero, wine, Infrastructure and real estate. Traditionally harder to access and trade, they have historically been the focus of institutional investors.
According to a recent report by McKinsey, the average retail investor has around 2 percent of their current portfolio in alternatives assets, compared with 30-50 per cent for institutions. McKinsey estimates that this will double to 5 per cent over the next three years, adding up to $1.3tn in new capital to alternatives.
Earlier this year we did our own survey of UK and European investors and their view on the Alternative market. What became very clear is that Alternative Assets are very much at the centre of high net worth investors’ minds right and it is hugely encouraging to see that the appetite for investing in this category is set to grow by over 46% (net) over the next 12-months.
We also got a very clear understanding of the types of alternative assets that investors were most likely to invest in, with Real Estate being the most popular at 75%. However, other alternatives were also seen to be very appealing including Long-term Asset Funds (62%), Carbon Net Zero Funds (51%), Forestry (49%) Fine Art (40%) and Wine (38%).The challenge will be meeting that demand and making these sorts of assets readily available.
From the results of our survey it is also clear there is still plenty of untapped potential in the market with many investors having little to no exposure to alternatives at all. We are already fairly saturated with real estate investments, and these are well understood, if not a little complicated. However, more thematic opportunities around impact investing, wine, infrastructure and specific private equity are hard to find and IFAs and other wealth advisors struggle to identify relevant investments to match their clients interests.
This will change, and platforms such as AssetTribe, who are both curated and demand led in the alternative assets they offer will start to become critical in broadening the accessibility of these opportunities to a wider investment audience.
To find out more about investing in alternative assets, register now with AssetTribe and diversify your investment portfolio.