Liquid alternatives delivered positive performance in the first half of 2014. The stand-out returns have been generated by event-driven (thanks to a rebound in corporate activity) and credit-related strategies (due to spread tightening in credit markets). Our outlook for performance is positive for the coming 12 months.
Private equity returns have been solid year to date, with appreciation in unrealized values and attractive cash returns driven by strong initial public offering (IPO) and merge and acquisition (M&A) markets. As long as rates remain low and exit activity high, robust conditions in the private-equity market should continue.
Investor demand for infrastructure remains solid due to the stable cash flows and growth prospects in the asset class. The risk of rising interest rates presents a headwind for slower growth utility companies. Conversely, energy companies are seeing secular growth, which off sets the risk of rising rates.
Globally, initial yields on property remain attractive relative to sovereign yields, while spreads off er a margin of safety should interest rates increase more than expected. To combat the risk of rising rates, we recommend an underweight to long-duration leased assets and an overweight to pro-cyclical property sectors that benefit from higher growth and rents.
Investments that offer exposure to hedge-fund strategies via liquid investment vehicles that are accessible to a broad range of client types.
Direct or indirect investments in private firms in various stages of development. Not quoted on a public exchange and with a medium to long time horizon.
Long-term defensive investment in infrastructure assets that may off er low correlation to traditional asset classes.
Direct or indirect investment in commercial real estate with the aim of delivering rental income and/or capital gains.