Overview
Navigating a shifting investment landscape
Uncertainty has remained a central theme in financial markets over the past several years, dramatically shifting the investment landscape for investors. In this environment, alternative investments have exhibited performance as varied as the category itself. All the more reason for needing a trusty outlook for the coming 12 to 18 months.
Expanding and enhancing portfolio potential
In the current landscape, the case for investing in alternatives remains as strong as ever. These assets can be a valuable part of a long-term investment plan, potentially helping diversify traditional portfolios, as well as lower volatility, expand investment income sources, mitigate inflation risk and enhance absolute and risk-adjusted performance.
Broad themes
Looking ahead into 2024, we expect to continue to see growing demand for alternative investments driven by three broad themes.
Market outlooks
Macroeconomic
Alternatives: As the dust settles
In brief:
- Last year saw broad repricings across many alternative assets that are still in various stages across different market segments.
- Light transaction volumes made it more challenging to get a firm gauge on asset valuations; however, the dust appears to be settling.
- Some of the most pressing investor concerns for 2024 will likely be diversification, inflation hedging and alpha --areas where alternatives historically have added support.
- U.S. inflation has notably declined and could soon reach the Fed's 2% goal, though may be closer to 2.5% longer term, providing opportunities for inflation-hedging assets.
- Strong public equity markets delivered double-digit returns in 2023, but a higher-for-longer rate environment could refocus attention on stock-picking and private equity alpha producers.
Multi-alternatives strategies
Strengthening portfolio resiliency with expanded diversification
In brief:
- The current investment cycle continues to point to the potential benefits of including alternative assets in a well-diversified portfolio.
- Investments in private equity, private core infrastructure and private real estate can collectively help bring “AID” to a traditional asset portfolio in the form of alpha, inflation risk mitigation and dislocation opportunities.
- A diversified multi-alternatives allocation can provide flexibility in pursuing investment goals by potentially increasing returns, reducing volatility and better diversify overall portfolio exposures, irrespective of the risk appetite of the investor.
- Historical segment rotation in core alternatives and generally much wider manager return dispersions in non-core alternatives offer considerable potential to enhance performance through active management.
- At this point in the cycle, credit-like alternative assets, equity-like alternative assets with pricing power and secondary investments appear particularly attractive.