In the Dixon’s inquiry vertical integration will not only be writ large, but it will have thousands of victims’ names attached to it. The practice has run relatively unfettered for years, but that may be about to change.
There are three things that an Australian private credit provider should be focussed on, and capital preservation is the “absolute number one”, according to Craig Brooke from KeyInvest.
‘Now’s the time’ for liquid alts: P/E Investments
The first thing P/E Investments Australia’s managing director Andrew Harrex wants you to know is that risk is not volatility. The second thing is that volatility can be your friend.
The third has to do with the long-time investment managers stock and trade, liquid alternatives. But while P/E Investments takes primarily focusses on currencies as a means to unlock non-correlative assets, Harrex believes the third thing applies to broader liquid alts “bucket” as well.
“That third thing is a conviction that now the prevailing economic conditions are conducive to investing in liquid alternatives. And when he says now, he means right now. “That third thing is a conviction that now the prevailing economic conditions are conducive to investing in liquid alternatives. And when he says now, he means right now.
“Right here today, there is a tailwind behind liquid alts,” Harrex told a room full of financial advisers and investors at The Inside Network’s Income and Defensives Symposium in Sydney recently.
The premise of this assertion, he explained, is simple; liquid alts are highly correlated to inflation and interest rates. When inflation is high, volatility is high and interest rates are high, liquid alternatives tend to do well, while the converse is true for public equity. “Have a look at the period from 2010 to 2020, [when] central banks squashed interest rates and volatility… liquid alts struggled during that period.”
Public equity, he continued, benefitted from completely opposite economic conditions.
“What is the perfect environment for private equity? Low interest rates, low volatility. That’s why they returned 16 per cent in the decade from 2010 to 2020… low volatility and low interest rates,” he said. “Why are they struggling today? High volatility, high interest rates.”
Given that the Reserve Bank of Australia has held the cash rate at 4.35 per cent since November 2023, and is forecast by most economists to leave it at that level until at least Q2 2025, an economic environment that is conducive to liquid alts is likely to remain for some time.
“So if you’re ever going to consider liquid alts, now’s the time, because there’s a tailwind for liquid alts and a headwind for private equity,” he said. “I’m not saying you’re not going to find a good investment [in private equity], it’s just going to be harder.”
