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Alternative Investing - November 2014

    CPD
    60min

    Introduction

    Originally this term included property and commodities, but as these have become mainstream asset classes in recent years the moniker now extends to more niche and specialist areas such as infrastructure, private equity, care home investing, absolute return, hedge funds and managed futures strategies.

    With the Bank of England and the European Central Bank (ECB) both keeping interest rates at record lows, the expectation of further action by the ECB could provide further incentive for investors to look towards alternative asset classes for returns, rather than equity markets, which tend to react negatively to such measures.

    Dawn Kendall, senior bond strategist at Investec Wealth & Investment, notes: “On several occasions Mario Draghi has referred to building the bank’s balance sheet to early 2012 levels. This suggests the balance sheet must grow by another ¤1trn [£785.3bn] and that the ECB now have explicit support from the national central banks.

    “This news will provide further support for the asset-backed market that we have expected to benefit from ECB action.”

    Kames Capital’s fixed income manager Sandra Holdsworth says: “The bond markets have interpreted this move as the ECB taking another step towards the purchase of government or corporate debt if the eurozone economic outlook continues to deteriorate.”

    In exploring the alternative space, it seems institutional investors are at the forefront of investing, with research from the Tower Watson Global Alternatives Survey 2014 noting total global alternative assets under management at approximately $5.7trn (£3.6trn).

    The survey covers seven asset classes comprising hedge funds, private equity, real estate, infrastructure, commodities, illiquid credit and real assets such as agriculture, farmland, timberland and water.

    Figures from the survey show that direct hedge funds are the most popular alternative asset class with roughly 27 per cent of the total, while direct real estate funds are a close second at 24 per cent. Meanwhile, real assets account for just 1 per cent and illiquid credit and direct commodities funds are also among the less popular at just 3 per cent each.

    Commenting on the findings Craig Baker, global chief investment officer at Towers Watson, points out: “Most of the traditional alternative asset classes are no longer really viewed as alternatives, but just different ways of accessing long-term investment themes and risk premia.”

    He adds: “Throughout the crisis, investors continued to move away from simply holding equities as their main growth asset and to make greater use of alternative assets; and we expect this to continue in the future. But investors need to be cautious about choosing the best and most efficient vehicles, not forgetting the increasing number of cheaper and lower governance routes for improving investment efficiency such as using smart beta.”

    Nyree Stewart is features editor at Investment Adviser

    In this special report

    CPD
    60min
    1. According to the Tower Watson Global Alternatives Survey 2014, how much were total global alternative assets under management?

    2. Direct hedge funds are the most popular alternative asset class with roughly what percentage of the total?

    3. Unofficial data suggests the amount invested in EIS in 2013-14 has climbed to how much?

    4. As at March 2014, how many hedge funds were managing approximately $2.7trn of assets under management, according to Hedge Fund Research?

    5. From 2012 to 2032 the population of over 85s in the UK is set to increase by how much?

    6. The number of people living in residential care in the UK will increase to 1.25m by what year?

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