A number of key trends in alternative investments will provide opportunities and challenges over the next 12 to 18 months, according to a new outlook released by JP Morgan Asset Management.
“While investors are clearly challenged by both stretched valuations in traditional markets and persistently low bond yields, we see ample opportunities for those investors willing to embrace megatrends across alternatives in areas such as ESG and technology,” said JP Morgan Asset Management head of alternatives Anton Pil.
The firm said its hedge fund investors saw significant opportunities for the alpha generation in 2022 with volatility unlikely to return to pre-pandemic levels.
“Hedge fund investors willing to pursue diverse and uncorrelated strategies are likely to find opportunities in a shifting array of near-term market dislocations and longer-term secular trends in 2022,” JP Morgan said.
Biotechnology, cyber security, sustainability, corporate governance and access to financial services, particularly in emerging markets, will present strong growth and alpha opportunities according to the firm.
Themes identified for the private equity sector in the year ahead include strong investor demand driven by the expectation of superior returns compared to the public market as well as expanding opportunities, especially in technology.
“Technological innovation is among the most potent forces generating venture capital, growth equity and buyout opportunities, not only among traditional tech companies, but across almost every sector of the economy,” said JP Morgan.
In its outlook for private credit, the firm predicted growth in supply and demand along with “ample opportunity” while inflation, increased competition and ongoing uncertainty from the pandemic are among the main risks.
“Global investors, alert to the threat of rising interest rates, are increasingly focused on real estate and real assets as alternative sources of yield and inflation protection,” JP Morgan said.
For infrastructure, the firm said it expects core infrastructure assets will continue to serve as a lower-risk and more forecastable source of diversification and steady income with strong governance, carbon disclosure and improving sustainability underpinning its outlook.
JP Morgan also noted that real estate was undergoing a “dramatic revival” and would provide alpha, income and diversification over the next 12 to 18 months so long as the supply-demand dynamic remains healthy and new COVID-19 variants and inflation do not derail the economic rebound.
“We are constructive on the global economy as we head into 2022 but recognise that investment returns in public markets may be more difficult to come by,” said JP Morgan Asset Management global market strategist David Lebovitz.
“Against this backdrop, it will be essential for investors to embrace alternatives as they navigate a world characterised by muted expected returns, historically low interest rates and elevated volatility.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
