NEW YORK, Jan. 19, 2021 /PRNewswire/ -- J.P. Morgan
Asset Management today released its third annual Global
Alternatives Outlook, providing a 12-to-18 month outlook across key
alternative asset classes and highlighting the views of the CEOs,
CIOs and strategists from the firm's 14 distinct alternatives
investment engines.
The report assesses the impact of a COVID-19 impacted year on
the investment landscape, and assesses opportunities across
alternatives in 2021 as investors continue to shift their focus
from public to private markets in the search for alpha, yield and
diversification.
"After the unprecedented events of 2020 and the ensuing economic
recovery, jump-started by swift central bank action and fiscal
stimulus, investors continue to hunt for yield to take advantage
of underlying consumer strength and resilient fundamentals
across global economies," said Anton
Pil, Head of Alternatives, J.P. Morgan Asset Management. "In
this environment, alternatives, perhaps once considered optional in
investors' portfolios, have become essential."
"Our 2021 Global Alternatives Outlook leverages our more than
50-year track record in alternatives to deliver nuanced investment
guidance for investors faced with stretched valuations in
traditional markets, limited correlation benefits between fixed
income and equities, and persistently low bond yields with
asymmetric risk."
The 2021 Global Alternatives Outlook also provides an
alternatives framework for investors to build resilient portfolios
by categorizing asset classes according to their role in the
portfolio, divided into core foundation, core complements and
potential return enhancers.
Some of the key themes revealed across asset classes in the 2021
Global Alternatives Outlook include:
Hedge Funds
Strong opportunities for growth in 2021 - A rich
environment for growth is anticipated in 2021, even with most
pandemic-related dislocation behind us and generally elevated
valuations. The macro backdrop is broadly supportive, with
continuing fiscal stimulus, liquidity from central banks, probable
above-trend growth and, most of all, economies rebounding.
Global megatrends to take center stage
- We'll be investing in global
megatrends—sustainability, emerging market consumers, tech
(including healthcare tech, such as telemedicine). We believe
consumer and corporate technology adoption is at an inflection
point, creating opportunities in cloud computing, software,
cybersecurity, payments, semiconductors and biotech.
Interesting opportunities to emerge from SPACs - We
expect interesting opportunities to arise from the improved quality
and credibility of SPAC sponsors, acquisition targets and
underwriters, SPACs' inefficiencies, and retail investors'
interest. Among the strategies, each with different risk/return
characteristics, we are investing in SPACs for yield and investing
in anticipation of an announced acquisition.
Acceleration of sustainable investing following
COVID-19 - We see the focus
broadening based on the environmental, governance and social issues
accelerated by the flagrant disparities in COVID-19's impact on
society—in health, income and education access for people of
color—and the revitalized civil rights movement. Like any
megatrend, there will winners and losers – and opportunity for
alpha.
Infrastructure
Control and stakeholder engagement remain paramount
- 2020 proved that owning a controlling stake in a
business often provides the tools required to manage a crisis,
where control positions allowed investors to work hand in hand with
their companies and management to quickly resolve any issues they
were facing during the pandemic. Stakeholder engagement also came
to the fore, when in the early weeks of the pandemic shutdowns,
regulated utilities agreed not to disconnect any customers for
nonpayment - both the right thing to do and exactly what regulators
were looking for.
Accelerated focus on energy
transition - The COVID-19 crisis
accelerated focus on the transition to a low carbon economy and the
build-out of solar and wind energy capacity will continue to
accelerate. Utilities will further shift from more traditional
fossil fuels to renewables, often complemented by less carbon
intensive and non-intermittent natural gas generation. Facilitating
this transition and its acceleration will continue to provide
investment opportunities.
Infrastructure to remain a valuable diversifier and source of
yield, income in 2021 - By their
nature, investments in private core infrastructure are expected to
be relatively cycle-agnostic, given they represent essential
services. As investors have a tough time finding income, we expect
the relatively attractive yield associated with infrastructure will
stand out. Indeed, more and more yield-centric investors are
allocating to private infrastructure. Like real estate 20 or 30
years ago, private core infrastructure is fast becoming a standard
part of institutional asset allocation.
Transport
Critical need for capital across sector
- Access to capital is critical for participation
in this capital-intensive sector, and this has grown even more
critical now given the pressing need for investment in
environmentally sustainable technology. The link between capital
strength and environmental sustainability will be self-reinforcing
as financing and leasing opportunities in the industry become
linked to environmental, social and governance (ESG) performance,
with one overarching goal: to improve engine technology and reduce
emissions.
Search for scalable and sustainable technology solutions
- Engines powered by hydrogen or ammonia could be an option for
ships but will require a global fueling infrastructure. However it
will be the larger, better-capitalized companies that will be able
to fund these improvements, likely accelerating industry
consolidation. Renewable power generation presents both a challenge
and an opportunity. For example, while wind farm generation can be
unpredictable, small-scale hydrogen or synfuel plants can be
positioned along transmission lines to use off-peak power (when it
would otherwise not be utilized).
Coordinated push for carbon transition provides
optimism - A virtuous circle is starting to emerge
in which banks, bigger asset owners and high-quality end users are
all focused on cooperating to reduce carbon reduction and promote
sustainability. While undisciplined capital could reintroduce the
overordering seen in the early 2000's, on balance, we believe
investors can find good opportunities in a transportation sector
increasingly adopting sustainability goals and providing
attractive, predictable, long-term returns.
Private Credit
Disruption doesn't mean destruction - Disruption is
temporary. We're finding assets and companies that should return to
normal (or bounce back stronger) as the world normalizes after
COVID-19. We will be especially selective, looking to steer clear
or sell companies and assets whose long-term decline has been
accelerated by new trends or shifts in behavior, especially
companies that increased leverage.
Defaults will be delayed - Heroic central bank
liquidity measures and emergency loans successfully rescued public
credit markets from a tidal wave of distress in 2020. But those
policy actions did not eliminate defaults – they dispersed a giant
wave into smaller, future ripples, creating several years of
opportunities for our credit hedge fund and distressed and special
situations teams.
Real asset lending takes the spotlight - We like
asset-based property lending for income and expect to originate
loans at better spreads and terms than pre-pandemic. And given the
low cost of borrowing, we like using modest leverage to enhance
income. Our asset-backed investing should be strengthened by the
stability of the underlying assets that, beyond commercial
properties, include critical new digital and green
infrastructure.
Private Equity
Big deals produce headlines, but smaller deals can deliver
differentiated results - While the largest buyout deals tend to
grab headlines, we see attractive opportunities among firms with
revenues of USD $10 million to USD
$100 million. Despite increasingly
competitive markets, these businesses can generally be purchased at
lower valuation multiples with transaction structures less reliant
on leverage.
Co-investing can potentially help investors reach PE program
objectives - Co-investments offer limited partners (LPs)
an opportunity to invest directly in an individual private company
alongside a sponsor that leads the due diligence and is ultimately
responsible for executing the deal. Relative to other types of
private investment opportunities, co-investments have the potential
to provide return enhancement, attractive economics, and increased
visibility and discretion.
Technology and innovation continue to drive opportunities
- Technology and innovation are transforming our lives,
economies and businesses – and driving substantial value creation
and return-enhancing opportunities in private equity. However, not
all innovative ideas translate into sustainable, profitable
businesses. Identifying the likely winners, ensuring that a
detailed value-creation plan is in place and executed—and that
downside risks are understood—requires a seasoned GP with deep
sector knowledge and specialized skills. Two areas we see
opportunity are in software-as-a-service and healthcare.
Real Estate
Opportunities in industrial and logistics boosted by pandemic
- The industrial/logistics sector appears to be the greatest
beneficiary of accelerating megatrends. The continuing shift to
e-commerce, along with technological leaps in connectivity, cloud
computing and the internet of things (IoT), is creating demand not
only for traditional industrial assets but also for specialized
core assets, including data centers, cold storage and truck
terminals. The pandemic, with its social restrictions, distancing
and adaptive work from home (WFH) practices, has amplified that
demand.
Retail is down but not out - Retail properties have
suffered significantly as COVID-19 has hastened the trend toward
online purchases, however it is not time to abandon the sector but
rather time to take a more discerning look at its variety of
property types and be laser-focused on diligent asset selection.
Retail property types have varying levels of susceptibility to
online shopping and "necessity" retailers have fared better than
those considered discretionary. Additionally, e-commerce
penetration varies by regional market, as do retail property
supply-demand dynamics. We see significant opportunity for
operators that can reimagine and develop spaces in line with
emerging retail models.
A brighter than consensus view on the office
sector - We are more optimistic on the office sector than
most. While working from home has accelerated under COVID-19, an
optimal, sustainable home/office balance depends on economics and
human nature - and may vary across businesses and regions. Some of
the dynamics supporting our more constructive outlook include the
ongoing need for collaboration for productivity, the growing share
of office-using jobs and the need for companies to plan for peak
office usage, even with flexible working arrangements.
Longer-term population dynamics continue to drive the outlook
for residential - Opportunities within residential real estate
around the globe are being driven primarily by population trends in
place prior to the pandemic. COVID-19 may be impacting the speed of
these trends, largely through work-from-home dynamics and limited
access to the dining, shopping and cultural experiences that make
urban centers vibrant, desirable places to live. The pandemic's
effect on demand is being felt unevenly across geographies, but we
believe it is likely to be relatively short-lived.
To view the full 2021 Alternatives Outlook
click here.
About J.P. Morgan Global Alternatives
J.P. Morgan Global Alternatives is the alternative investment
arm of J.P. Morgan Asset Management. With more than 50 years as an
alternatives investment manager, $150
billion in assets under management and more than 600
professionals (as of September 30,
2020), we offer strategies across the alternative investment
spectrum including real estate, private equity and credit,
infrastructure, transportation, liquid alternatives, and hedge
funds. Operating from offices throughout the Americas, Europe and Asia
Pacific, our 14 independent alternative investment engines
combine specialist knowledge and singular focus with the global
reach, vast resources and powerful infrastructure of J.P. Morgan to
help meet each client's specific objectives. For more information:
jpmorganassetmanagement.com.
About J.P. Morgan Asset Management
J.P. Morgan Asset Management, with assets under management of
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