European investors focus in on alternative assets
Alternative assets used to be seen as an implicitly risky class of investment. However, in our post-crash world, the safety of traditional investments has been called into question and alternative assets are being seen as an increasingly attractive prospect.
In fact, investors are paying more and more attention to these assets, which include such things as wine, forestry, collectibles, rarities and real estate.
The Mercer 2015 Asset Allocation Survey looked at European investors and found that institutional investors are putting significant time and resources into alternative assets.
Phil Edwards, European director of strategic research in Mercer’s investments business, commented: “After 2014 surprised investors with a dramatic fall in long-dated bond yields and a halving of the oil price, 2015 has already provided investors with plenty of food for thought.”
He added that low and even negative bond yield in some cases is forcing fund managers to explore alternative markets. He explained: “To meet their objectives, investors will need to challenge their existing beliefs and processes and embrace less familiar asset classes and less constrained strategies.”
There is already financial evidence of this process taking place within the European institution portfolios. Mercer’s research looked at almost 1,100 portfolios across 14 countries, with assets worth more than 950 billion euros. They found that alternative asset funds accounted for two percentage points more of the total managed funds than last year, up from 12 per cent to 14 per cent.
British people appear to be even more interested in these asset classes, with the vast majority of a six-point reduction in equity allocations in the last two years being allocated to alternatives.
One of the major advantages of alternative assets over traditional investment options is the power to diversify. While traditional investments are more directly tied to financial markets, alternative investments provide the option to invest in longer-term assets that follow different patterns and trends that, while they tend to still be tied to economic factors, are not always impacted in such a direct manner.
The abstract concept of stocks and shares can be off-putting for investors who have previously seen their savings decimated with nothing to show. This makes the concept of investing in something material, such as art or even woodland, a draw for some investors.
On a connected level, there is the bonus of being able to do something good with your money besides just growing it. Impact investments are one such asset class that allow this to take place, enabling people to invest in sustainability agriculture, renewable energy or affordable housing, for example.
The trend seen in the Mercer report is the result of years of adjustment in a financial market full of turmoil. Investors are no longer sticking to traditional models out of fear of the unknown; their eyes are now wide open to the risks in all asset classes and they’re making balanced decisions as a result.