2017 set to be a ‘breakout’ one for alternative investments
2017 is set to usher in a “new chapter” for investing as smart spenders continue to trust putting their money into alternative investments, driven by “some of the highest gains” they’ve enjoyed in years.
So says Madelaine D’Angelo, founder and CEO of art crowdfunding platform Arthena, who argues in a piece for Huffington Post that the year ahead will be a “breakout” one for alternative investing, as a mix of market trends and investor strategies combine to form a perfect cocktail.
“It has been an exciting start to the investing year. Between the Dow Jones flirting with 20,000 points, a major milestone, and financials finally getting back to levels we haven’t see for years, investors are sighing with relief,” D’Angelo writes.
“Last year, we saw a major uptick in savvy investors seeking higher returns in other markets due to a choppy fiscal environment and political insecurity. However, it seems like markets are collectively turning the page to a new chapter of investing in 2017. While high-net-worth individuals may have been pushed to access alpha elsewhere in 2016 due to market uncertainty, these individuals will likely stick to those alternative investments because they’ve experienced some of the highest gains they’ve experienced in years.”
D’Angelo cites stats and research from McKinsey and PricewaterhouseCoopers showing that:
Portfolio allocations to alternative investments are on the rise – and set to keep on rising, rapidly
Investor allocation to alternatives is set to grow nearly 10 per cent each year for the next five, hitting a whopping $13 trillion in volume by 2020.
So how come? D’Angelo says there are three main reasons.
One – IPOs are taking longer. “Going public is an expensive and time-consuming process for a new business, one that requires a company to jump through many regulatory hoops,” she posits. “To capture outsize returns, you have to invest in these companies while they’re still private.”
Two – investors are taking alternative assets more seriously than they did before. Volatility in public equities and reduced yields on bonds mean alternative asset classes are looking more attractive. “Affluent investors need diversification – and they expect their advisors to guide them beyond just a mix of stocks and bonds. Simple asset class and international diversification just doesn’t cut it anymore.”
Three – alternative assets offer a degree of trust. Post 2008, some investors invested in bonds, but these now offer low returns and risk to principal should interest rates increase. “They know they need some assets in their portfolios that are truly uncorrelated with interest rates and the stock market, so they don’t lose their nest eggs just when they’re ready to crack them open. Alternative investments – particularly liquid alternatives – may be just the ticket for this group.”