Alternative Opportunities is a quarterly report from Invesco Solutions. In each new edition, we look at the outlook for private market assets. In particular, we focus on private credit, private equity, real estate, infrastructure and commodities.
The backdrop supporting a more favourable transaction environment is firmly in place, including better visibility into the macro environment, softening inflationary pressures, potential rate reductions, and heightened pressure from limited partners and private equity firms to generate realisations and invest in new platform companies.
Leveraged buyouts (LBOs) are facing tremendous pressure to realise distributions to limited partners in a constrained exit environment due to elevated valuations and a limited appetite within public markets for IPOs. We reassert our focus on growth strategies versus those that require expensive levels of debt.
We remain confident that, depending on the region, we are either at or close to the trough of private real estate valuations. Looking forward, it is our conviction that the next couple of years will offer very strong forward-looking returns, hence our upgrade of real assets to neutral.
At present, merger arbitrage spreads are slightly above their long-term average and represent a decent total return potential. Allocations to merger arbitrage hedge funds will likely come from fixed income in this environment.
Commodities hit a 15- month high during the quarter, led by the surging price of metals, including silver and copper. As a result, trend measures saw the largest improvement in Q2 and allowed the asset class to transition from underweight to neutral.
Max Underweight |
Neutral |
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Max Overweight |
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|---|---|---|---|---|---|
| ◄──────◯────────◯────────────◯───────◯────────◯─────► | |||||
| Portfolio risk | ◯ | 🔵 | |||
| Private credit | 🔵 | ||||
| Private equity | 🔵 | ||||
| Real assets | ◯ | 🔵 | |||
| Hedge funds | 🔵 | ||||
| Commodities | ◯ | 🔵 | |||
◯ Prior positioning 🔵Current positioning
A broad range of investments fall into the ‘alternatives’ asset class, including real estate, private credit, private equity, infrastructure and hedge funds. The asset class is growing, as investors continue to turn to alternatives for diversification and to navigate challenging market conditions.
Alternative assets often behave differently to public market assets like equities and bonds. Their unique characteristics mean that they can help investors achieve a diversified portfolio. Typically, they also generate higher returns than public market assets.
We manage over $177 billion (as of 30 September 2023) in alternative strategies, spanning private credit, real estate, private equity and beyond. We share some highlights below:
Why complement direct lending with real estate debt?
Private credit, including real estate debt and direct lending, may offer diversification and lower volatility, making it potentially an attractive option for investors seeking optimized portfolios.
Global and US commercial real estate outlook — looking beyond 2024
A global and US real estate recovery with transaction activity re-accelerating and the start of a new real estate value cycle is close in our view.
Debunking common myths about senior secured loans
Senior secured loans offer investors a unique source of income potential, but they’re often misunderstood. We highlight the myths and realities of this asset class.
The value of investments and any income will fluctuate. This may partly be the result of exchange rate fluctuations. Investors may not get back the full amount invested.
Alternative investment products may involve a higher degree of risk, may engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, may not be required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual portfolios, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. There is often no secondary market for private equity interests, and none is expected to develop. There may be restrictions on transferring interests in such investments.
All data is provided in USD and as of May 31, 2024., sourced from Invesco unless otherwise stated.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change.
Israel: This document may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Nothing in this document should be considered investment advice or investment marketing as defined in the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 1995 (“Investment Advice Law”). Neither Invesco Ltd. nor its subsidiaries are licensed under the Investment Advice Law, nor does it carry the insurance as required of a licensee thereunder.
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