Inflation beating returns
BENFITS: DIVERSIFICATION, RELIABLE INCOME STREAMS, ACCESS TO EMERGING MARKETS
Asset classes are not meant to replace the investor’s listed market allocation to fixed income, public equities and cash.
Private market investing is becoming mainstream in South Africa as investors shift to assets such as private equity, private debt, real estate and infrastructure.
Institutional investors, high net worth individuals as well as regular investors are seeking inflation beating investments after a sustained period of low JSE returns.
Private market assets, also referred to as alternative asset investments, refer to those not traded on a public exchange.
All SA investors can now access an array of private market asset classes, which are not meant to replace the investor’s listed market allocation to fixed income, public equities and cash but rather to complement it – especially in the current low-return environment.
But it’s not just about the potential for achieving better long-term returns than traditional listed markets.
The main reason for choosing various private market asset classes is for the benefits of diversification. Additional reasons may include to act as an inflation hedge, the creation of reliable income streams, absolute returns, sustainable investing goals and accessing emerging markets in which public markets are thin.
International trends tell us investors are increasingly opting for more exposure to private market investments and allocation to these markets can range from 10% to 40% depending on risk tolerance and cash flow needs.
In little more than a decade, global private market assets under management have grown, from $2-trillion (about R29 trillion) in 2008 to about $5.5-trillion (about R80 trillion) in 2019. Assets under management are expected to exceed $8-trillion in 2023. It means an asset class-allocation evolution is under way. This is in stark contrast to the current low allocation SA institutional and pension fund investors have, for example, allocated to these asset classes.
In the past, private assets were considered too hard to access, opaque or a niche for a particular kind of investor, but now they are easier to access and widely accepted as an attractive alternative across the investor spectrum. Retail investors can also access private market assets through various funds.
What are alternative asset investments? Alternative asset investments, or private market investing, include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Real estate is also often classified as an alternative investment.