In­fla­tion beat­ing re­turns


The Citizen (KZN) - - Personal Finance - Ash­bur­ton In­vest­ments Al­ter­na­tive As­set Man­age­ment team

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.

Pic­ture: Shut­ter­stock

POP­U­LAR. Global pri­vate mar­ket as­sets un­der man­age­ment have grown, from $2-tril­lion in 2008 to about $5.5-tril­lion in 2019.

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