Alternatives

Alternative opportunities: Outlook for private credit and equity, real assets, and hedge funds

roads crossing over each other

Due to the combined impact of high stock valuations and the elevated cost of financing, we remain neutral on how we’re allocating risk within our alternatives portfolio. In general, we’re more bullish on defensive alternatives, favoring private debt, real assets, and hedged strategies versus private equity. Here are key takeaways from each asset class. (Read the complete Q3 Alternatives opportunities report.)

Private credit: Overweight as spreads begin to widen in public markets

As market volatility subsides, we’re watching for signs of renewed mergers and acquisitions (M&A) activity. In the meantime, patient credit investors may continue to benefit from a favorable higher-for-longer rate environment. We’re overweight real estate credit due to the high levels of current income and the recovering real estate equity market.

Q3 private credit summary

 

Overall

Valuations

Fundamentals

Secular trend

Direct lending

Overweight

Neutral

Neutral

Attractive

Real asset credit

Overweight

Attractive

Neutral

Attractive

Alternative credit

Overweight

Neutral

Neutral

Attractive

Private equity (PE): Underweight due to moderating valuations 

We remain underweight private equity, especially traditional buyout strategies, which generally require leverage to generate returns. The combined impact of high equity valuations with an elevated cost of financing may be a significant headwind.

Q3 private equity summary

 

Overall

Valuations

Fundamentals

Secular trend

Private equity

Underweight

Unattractive

Neutral

Neutral

Real assets: Slight overweight as valuations approach trough

We’re slightly increasing our exposure to real estate because our conviction that valuations have bottomed is beginning to form. While we’re optimistic amid easing financial conditions, we remain vigilant because of tight cap rates and a murky outlook from policymakers.

Q3 real assets summary

 

Overall

Valuations

Fundamentals

Secular trend

Real estate

Overweight

Attractive

Neutral

Neutral

Infrastructure

Overweight

Unattractive

Attractive

Attractive

Hedge funds: Overweight due to levels of arbitrage spreads and central bank easing cycle

Hedge funds with lower betas to market risk may be a valuable alternative within a portfolio, in our view. Spreads within event-driven strategies remain high despite limited capital markets activity from M&As because private equity has remained sidelined.

Q3 hedge funds summary

 

Overall

Valuations

Fundamentals

Secular trend

Event-driven and arbitrage

Overweight

Neutral

Neutral

Attractive

Systematic trend

Overweight

Neutral

Neutral

Attractive

Discover our capabilities

Our scale, combined with the breadth and depth of our offerings, means we have the flexibility to meet your needs as markets evolve.

Alternatives at Invesco

Real estate strategies

Partner with Invesco Solutions