Evolution of Alternative Investing: Adolescence to maturity and looking to 2022

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As we enter a new decade, getting used to living with a global pandemic, the most violent bear market in history, and unprecedented uncertainty, alternative investments continue to be a polarizing topic. What should we look forward to in 2022? 

Investors all over the world are:

  • Allocating more to Alternatives but want to retain control over investment decisions.
  • Resource-constrained so seeking external support (Advice, Analytics, Due diligence, and assistance in Implementation)
  • Adapting to remote working, with the expectation that the future of work will be meaningfully different.

Pre-pandemic, we were already seeing increased demand for alternatives, with investors selecting bespoke combinations of asset classes.

The last year has seen these trends accelerate. The alternatives industry has not been immune to the overarching theme of remote working over the last year, which has impacted how we as a sector work from due diligence, to trading, to carrying out research. The short answer is that we’ve seen an increased reliance from our clients on external assistance. 

Investors are demanding increased transparency; now to be clear this is not new, but it is certainly becoming ever more important and has been embraced across a wider range of topics. What has driven GlobalNet development over the last year is the key focus of our business which has not changed, and that is our advocacy for transparency, the pursuit of an alignment of interests. 

We recognize that our clients’ needs are wide and varied; ultimately, there is no one size fits all. Thus, we are in a constant search for trustworthy asset classes that can deliver. 

Two key topics come up again and again, and that is how to better incorporate Diversity and Inclusion of Environmental, Social, and Governance (“ESG”) factors into the due diligence process. 

What are the primary challenges asset investors are facing and what is critical to these being overcome? 

From discussions with dozens of our clients and with CIOs, a few key topics kept coming to the starting point is the general concern around the expected returns of ‘traditional’ assets, ie equities and fixed income, which leads to a consensus desire to increase allocations to alternatives.

But what are the trends in this ecosystem and what should we look for? 

Today’s global healthcare marketplace is marked by unprecedented transformation. The seismic shifts in healthcare delivery and drug development during COVID-19 have, in 2021, continued to demonstrate the power and capacity for changes in the market. A deep understanding of future regulatory and political risks is more important than ever. Within this dynamic environment, we are passionate about our role in shaping the alliances that will lead to next-generation health funds.

Social and Supported Housing in the UK The past two years has seen an explosion of interest by investors in supported housing. The sector’s first real estate investment trust (REIT), launched by Civitas Social Housing, targeted supported housing but since then the sector has seen a host of fund launches, and all seem to be doing very well. 

The underlying appeal of supported housing for investors is that it offers them the inflation-linked long-term income streams they crave. The returns from government bonds, the traditional main source of such income, have dropped in recent years, forcing the likes of pension funds to find new ways of paying their members’ retirement incomes. Supported housing offers investors the opportunity to buy long leases that will generate the desired inflation-linked income, typically for periods of up to 25 years.

Another area of interest that is very interesting is Long Term Care Fund (Spinal & Brain Damage) Purchase existing purpose-built, high-end care homes for brain and spinal damage with high occupancy levels producing consistently high net profit margins. Acquire businesses at a discount to standard industry EBITDA ratio to improve investor yields and increase capital appreciation.

Investing in Infrastructure: The pandemic has underscored the resilience of infrastructure as an asset class. Because of this, the investment infrastructure sector has seen huge change and disruption but significantly, the trends from previous years are now restabilizing

  1. The shift away from carbon-intensive assets towards cleaner energy assets.
  2. The increased appetite for digital infrastructure assets has risen from capital deployment into digital and data infrastructure. The increased consumption of video content, the advent of 5G, the replacement of copper with fiber optic cables all contribute to a once-in-a-generation of data infrastructure and investment upgrades of around $1 trillion over the next 5 years.

In addition to these trends, COVID-19 has brought to the forefront two new trends in the sector:

  1. ESG and healthcare have become supercharged, particularly as infrastructure investment is seen as a key player in the post-COVID-19 recovery.
  2. Forward planning to consider how infrastructure investment and capital that’s available can be part of longer-term transitions – for example, how can the resources from energy transition and digitization be put to work to support wider macro trends?

Dan Dobry was the founder of the Union of Financial Planners in Israel (UFPI), served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 – 2018 and from January 2019 is a member of the Committee for Standards and Qualifications for the European Union (SQC).