Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Property subsectors firm as positive portfolio additions across the spectrum
Despite the commonality of traditional home ownership, when it comes to the act of portfolio construction, real estate is considered an alternative investment. And within that alternative investment universe there are traditional and alternative subsectors.
Whether the property subsector fits into the traditional or alternative sleeve, however, the combination of income and potential capital gain is an increasingly attractive one for investors.
While residential real estate, for example, qualifies as an alternative asset, it also fits on the traditional side of the alternative spectrum according to Julian Biggins from MA Financial.
“I think there’d be no disagreement in this room that [real estate] is an alternative asset class,” Biggins (pictured) said at The Inside Network’s recent Alternatives Symposium in The Hunter Valley. “It fits that remit nicely, but it has quite a wide berth.”
Basic laws of supply and demand make residential real estate a “fantastic” asset class, Biggins said, and while mums and dads get tax benefits from owning their own property there are more intrinsic reasons to invest in a residential real estate that wholesale and institutional investors are getting across.
“Finite land is a very good place to invest. We’ve seen many people create a lot of wealth through through investing in land, and we look to basically create a lot of cash flow off a finite asset that is land,” Biggins explained. “Residential is probably, hands down, the best sector in terms of supply and demand, and that’s to the favor of people who own residential. The supply is incredibly constrained.”
But the traditional alternative assets aren’t the only ones capturing the market’s attention, with the non-traditional alternative assets potentially offering just as many benefits. Healthcare property, for example, is on the alternative side of the real estate spectrum, but astute investment in and careful management make the subsector just as attractive.
According to Barwon Investment Partners partner Tom Patrick, the alternative or non-traditional real estate subsectors that have put together return profiles greater even than residential or commercial real estate in recent years.
“Over the past decade, the returns of alternative real estate segments have been higher than traditional real estate,” Patrick said at the symposium, noting that “alternative or new” segments have delivered almost double the returns of traditional commercial property over the last 13 years.
“It’s a very interesting statistic. From an income perspective, we find the old sectors are typically more defensive given they’re sort of often left less exposed to the economic downturns compared to traditional commercial property,” he continued.
Aa with residential real estate on the traditional side, the benefits of investment in the non-traditional side are being picked up by the entire spectrum, with institutional investors just as keen to follow the money.
“From a capital growth perspective, the structural tailwinds that you can access through alternative segments have been very good,” Patrick said. “At least in Australia, there’s been an increasing institutionalization of the alternative asset segment; in short, ten years ago these assets weren’t broadly owned by institutions… but we’ve definitely seen an inflow of institutional capital over the last ten years.”
