Is There a New Market Context to the Case for Private Assets?
What has changed in the environment and trends that may encourage investing in alternatives?
Because the macroenvironment is a significant factor at play, it is impossible to assess the significance of private assets in asset allocations in isolation. The post-pandemic world, in our opinion, offers a new macro equilibrium that necessitates a response. The pre-pandemic level is expected to be exceeded by inflation, boosting the threshold for maintaining buying power. So you can only increase wealth by making the inflation effect work for you. It is possible to argue that future volatility will be higher. Probably yes. In a future where markets are less trend-driven and returns from passive betas are lower, active management will be more important.
Due to the threat of lower-than-average returns and the urgent need for diversity, investors have sought private assets to fill out their portfolio allocations. This has made alternatives attractive. In the cases of infrastructure, some types of private debt, real estate, and natural resources, this is especially pertinent. Although private assets represent a component of an overall active allocation, it would be incorrect to believe that they are the exclusive source of active returns. The march toward increasing private exposure has been motivated by the pursuit of diversification. In a similar vein, the volume of listed equities in developed markets has decreased. This diversification must be regarded from the perspective of separating the more beneficial diversification generated from exposure to economic sectors that are challenging to purchase in open markets from the “fake” diversification of not tagging to market.
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