The alternatives sector is unique in that it’s largely defined by what it’s not. Accordingly, how you fit alternatives within your existing asset class structure will depend on relativity, and how the investments interact with the other asset classes according to Atchison’s Kev Toohey.
The private markets juggernaut is one that has also thrown up a wealth of data that other players can use to sharpen up due diligence when making their own investment decisions – especially in the growing secondaries market.
Zenith boss warns on ‘overwhelming’ market consensus
Zenith CEO David Wright has warned that advisers are turning away from alternative assets at a time when they may become more important than ever.
Speaking to media on Thursday, Wright voiced concerns that advisers were abandoning alternative assets despite the possibility of “stronger than forecast inflation” and heightened market volatility.
“There does appear to be a fair bit of both adviser and investor apathy. We’ve had a strong bounce-back from March last year, and one of the things we’ve noticed with mainstream advisers is that they’ve kind of given up on alternative investments,” Wright said.
Wright believes that the “pretty muted or pedestrian returns” of global macro, market neutral, and managed futures strategies have led advisers to question the value of those strategies in portfolios. But while Wright conceded they’ve never been designed to keep pace with “raging bull equity markets,” the much more challenging environment for returns and stronger than expected inflation could see the use of alternatives become “very, very important.”
“Not just as a way of protecting investor capital, but as a way of generating returns in downward- or sideward-moving markets. Let’s face it, other than the big correction last year, we haven’t really had one in a long period of time,” Wright said.
Wright also warned low bond yields were creating a “stretch for yield”, driving retail investors further down to the credit-quality spectrum into areas that can be “pretty dangerous” in terms of both management and the lack of understanding of the illiquidity that goes hand-in-hand with high-yielding securities. The other issue keeping Wright up at night is the “overwhelming consensus” forming around inflation expectations and monetary policy.
“A lot of people are placing a lot of faith and confidence in the central banks to be able to run (inflation) back,” Wright said. “The commentary there is that it’s emerging, that it’ll be transitory, that we’ve got it under control…whenever there’s overwhelming consensus in markets, you can almost guarantee that’s when there’s going to be a correction.”
