Source: Business Day
In their search for uncorrelated returns in a turbulent world, asset managers are looking to alternative investments for diversification and inflation-beating performance.
“Based on a wide body of global research, the traditional 60:40 equities-to-bonds portfolio split needs a rethink due to structural changes in the market and a shift to a high inflation, low-to-moderate growth environment.”
says Dino Zuccollo, Head of Investor Solutions at Westbrooke Alternative Asset Management.
“Some market commentators are advocating that alternatives comprise up to 30% of client portfolios, with about one-third allocated to private debt.”
According to Zuccollo, private debt currently offers some of the best risk-adjusted returns for clients in the prevailing high global interest rate environment.
“For example, our Westbrooke Yield Plus UK private debt fund is generating a net yield of about 9.5% in British pounds from a diversified portfolio of roughly 50 senior loans mainly secured against property in the UK and surrounds.”
The fund is currently raising about 20m per quarter from South African connected capital, which underpins the popularity of the asset class.
“Similarly, our Westbrooke Income Plus SA private debt offering is generating a net yield of about 135% pa,” adds Zuccollo.
A recent report on alternative investments by JP Morgan Research highlights additional opportunities in gold, which could peak at $2,300/oz in 2025, alongside expectations that multi-strategy hedge funds will continue their outperformance in 2024.
Francois Botha, Chief Investment Officer at OIG, supports hedge fund inclusion in portfolios.
“Hedge funds have more levers to pull, especially during unsettled times. This enables these investments to achieve a smoother and less volatile return profile for clients, which is important given the volatility set to characterise the remainder of the year.”
Botha highlights local and global elections, interest rate decisions, sticky inflation and growth concerns as the main drivers for the potentially volatile period that lies ahead, which hedge fund strategies can capitalise on.
The potential also exists that some headwinds could fade in private equity this year, though the overall backdrop for the market remains challenging.
Dr Hendrik Snyman, Chief Investment Officer at Gaia Fund Managers, identifies additional opportunities to deploy private capital within the agriculture and infrastructure sectors in Africa.
Africa hosts 11 of the world’s 20 fastest-growing economies, which is driving staggering demand for basic services such as electricity, dean water, sanitation and transport infrastructure, and agricultural projects to meet the growing demand for food.
Faced with constrained government budgets, Snyman believes that significant opportunities exist at the nexus of this demand and supply imbalance for private capital to construct, own and operate infrastructure and recover costs on a pay-for-use basis.
“We believe the best approach is to expand already profitable projects with teams that have the necessary experience to navigate the difficulties associated with doing business in Africa. Investors who can take a long- term view to participate in these investments should identify asset managers with access to these opportunities as part of their larger fund allocations.”
