(Market Research Telecast) - Alternative investments are more present than ever. Among the main reasons experts give to explain the growth of this type of investment you find the search for attractive profitability in an environment of very low interest rates and, very importantly, the uncorrelation that usually exist with investment in traditional assets (such as the stock market or fixed income), among others.
In the last five years, investment in alternative assets has experienced strong growth, reaching assets under management of 10.310 trillion dollars in the world at the end of 2019, according to data from Prequin. According to the consultancy, Spain marked a historical maximum above 8,000 million in 2019. Among the factors that explain this growth are the good returns in both bear and bull markets, thus contributing to the increase in investor interest.
The Private Equity is one of the alternative investment options, and consists of provide financial resources a companies small, medium and large for a period, in exchange for a participation in them (normally unlisted) in order to make them grow and make them more profitable.
And Marc Romano, head of Mirova’s Impact Private Equity team, and a faithful representative of investment in this asset class, comments on his vision of the asset in an interview with Investment Strategies. Romano joined Mirova in 2021, although he was previously Managing Director at Five Arrows, the private equity business unit at Rothschild & Co, and was also CEO at Schroders, Credit Agricole and AXA.
The expert recently visited Spain and found a lot of interest from all Spanish customer segments in investing in private capital. He also comments that his thesis is that the impact feeds the performance and makes it more sustainable, so that his investment proposal is relevant and attractive for any investor seeking to diversify via investment in private equity.
Given the rebound that investment in alternative assets has had as a way to de-correlate the portfolio, the question arises whether Is it still a good time to still invest in them? to which Romano responds overwhelmingly that YES, and adds that you have to think that you have many types of alternative assets and there is a big difference between private assets and listed assets. For example, in terms of valuation, in listed assets it has a daily valuation that there is not in private assets. That mechanically creates a de-correlation compared to listed assets, which allows the investor, especially if the investor is a long-term investor, to have exposure to the equity markets without having to pay a market price. Therefore, there is still momentum to invest in private assets if your only goal is de-correlation. Apart from that, due to investors’ appetite and due to innovation, there is a potential for appreciation that is enormous, so this is still a attractive asset class.
Comment that innovation is one of the great dynamics of private assets and a driving key in value creation. Every day we see new entrepreneurs, new startups and at least in Europe, innovation is what fuels the market for private equity. It is also much easier to explain to a client, since it is invested in a company, with a direct link between the money contributed by investors and the use made of it. That is the reason why it is extremely popular, since contribution to society and community can be directly measured. In other cases, they may not have a clear view of how their money is being used as an investor, but that is not the case for private assets.
Regarding future expectations, Romano expects the large volume of investments in private equity or private equity to continue. “In this decade of the 21st century, in which companies need to reinvent themselves to face environmental challenges and the social changes And that’s fantastic support for investments coming into the private asset space. “
Speaking of the environment, where investors are concerned about inflation, it is appropriate for investors to know the impact of higher and permanent inflation on private equity, to which the expert points out that you have to think about inflation in two ways: inflation per se and then interest rates. Now we find ourselves in a somewhat unique situation, with inflation but low interest rates, which is not common from an economic point of view. Inflation could have some impact on the private equitybut not too much, even if there was a sharp rise in interest rates. “From my point of view, the impact of higher inflation on private assets will be softer and more diluted compared to listed stocks. One reason is that it does not add the immediate and exaggerated reaction that it would suffer in the listed space, so the effect would be more averaged.
It should also be considered on which side the company in which it is invested is exposed, that is, if it is in the B2B or B2C space. In addition, it should be considered that although inflation is higher than in the past, for now there has not been a large increase in wages, which if the impact occurs could be significant for some startups. But according to Romano, its central scenario is one of impact but not systemic.
By Marc Romano
DECEMBER 15, 2021
