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Giving shifting global dynamics, how are institutional investors thinking differently about return targets and integrating alternatives and unique sources of alpha alongside traditional growth assets?

Joe Azelby
Global Real Assets
"Going into emerging markets on a private investment basis makes a lot of sense because you’re able to access growth"
Michael Hood
Investment Strategy
"Emerging markets will be the growth “stars” not just for now but for several decades to come."
HOOD: “So how should investors think about generating higher returns and growth?  In a slower-growth envi­ronment, projected equity market returns are likely to be lower. But, when thinking about the division of that growth, emerging markets will be the growth “stars,” not just for now, but for several decades to come. Estimates from the Organization for Economic Co-operation and Development (OECD) of potential GDP growth rates indicate that non-OECD countries, which represent emerging markets, will exceed the developed market aggregate over the next five to 10 years. Emerging market growth is not a ‘flash in the pan.’
 
That outperformance is something we are going to be living with for a long time to come. We need to think creatively about getting that emerging market growth represented in our portfolios, not just as a tactical play but as a long-term strategic play.”
 
AZELBY: “I agree, Michael.  Investors are also facing an almost once-in-a-life­time challenge: Interest rates are less than two percent in the West and growth is around 2%. The good news is that, with the equity market, at least in the U.S., at its highs, and emerg­ing market equities underperforming, it seems like a good time for investors to diversify their portfolios—if you believe in selling high and buying low. Going into emerging markets on a private investment basis makes a lot of sense because you’re able to access that growth without taking on all of the correla­tions of the global equity markets—these return drivers.
 
We’re big believers in being on the ground in those markets and looking for, in my case, real assets (whether real estate or infrastructure), and buying things that are basically a pure play on the underlying growth of those economies.
 
This is also why investors should look at loosening their constraints to incorporate higher allocations to private market investments such as real estate, infrastructure, and private equity.”
 
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J.P. Morgan
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