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The Path Forward for Alternatives “Post-COVID”

2:30 min read

The full impact of the COVID-19 crisis on alternative investments remains to be seen. The scope of displacement that businesses and investors will experience, as a result of the 2020 recession, looms large as governments and institutions begin reopening and the path forward comes into focus. The impact of vaccines and the extent to which our behavior will reconfigure as public sentiment gradually embraces “normality” remains unclear. 

The definition of normality depends on human, public health, and economic forces, as explained in detail in Alternative Perspectives: Preparing for a Post Pandemic World from the Asset Management Division of Goldman Sachs. Sectors of focus include private equity, real estate, growth equity, and credit investment.  

“Awaiting the surviving businesses on the other side will be...ultimately a restored economy in which consumer and business behavior is seriously reshaped by the scars of 2020.”

As part of that publication, the Goldman Sachs Alternatives Survey queried asset managers and asset owners worldwide in an effort to uncover how stakeholders are adapting to the current environment, and how their approach to future opportunities have changed.

What are Alternatives?

Alternatives are an asset class defined as any type of investment that isn’t a stock or bond. The most common alternative investments are real estate, commodities, private equity, and hedge funds. However, any market-based asset that isn't a security or credit bond qualifies as an “alternative” investment, even fine art or rare wine.          

Respondents confirmed trends linked to the ongoing effort of reopening, supporting a broader picture of the global recovery. The survey illuminates sector performance as this unprecedented phase of the coronavirus pandemic continues to unfold.

Highlights from the report data: 

  • Demand for private assets continues to grow
  • 60% of investors surveyed plan to increase private asset allocation
  • North America is the region of greatest allocation focus
  • Domestic and foreign investors increased NA assets by 18% and 20% respectively
  • Pivot to remote work improved productivity, on margin
  • Only 27% of workers surveyed cited a decrease in WFH productivity
  • Virtual interactions limited impact on investing activity
  • Dealmaking limited to 27% decline and fundraising declined only 9%
  • Dispersions of returns expected to widen
  • 82% of respondents say spread will widen between best and worst alternatives performers
  • Moderate impact of pandemic on portfolios to date
  • 30% of respondents cited portfolio improvement; 37% cited no change
  • ESG adoption continues upward trajectory
  • One-third of respondents view sustainability as a higher priority as a result of the pandemic
  • Resources are the biggest managerial challenge
  • 36% cited lack of resources, technology, or portfolio analytics as the most significant challenges
  • Few surprises in near- and long-term portfolio risks
  • Recession in North America was viewed as biggest, near-term risk

It’s clear the COVID-19 crisis continues to impact the alternatives asset class, and the public health actions of individuals, governments, and businesses will shape the road ahead.

As reported in Alternative Perspectives, the factor perhaps most crucial to the next phase of recovery is the race to herd immunity. The pace and duration of reopening and the stability of the underlying economy may be linked to public vaccination sentiments and the success of programs instituted to enhance it. 

“The critical element is time. Liquidity is not endless, and timing to uptake of an effective vaccine is key for market confidence...”

Other key areas of insight covered in the publication include:

  • Recovery is driven by public health efforts, not economy
  • Private equity health and safety sectors are dependent on herd immunity
  • Credit investments are dependent on new behavioral norms
  • Future of growth equity for digital acceleration is TBD during reopening
  • There is unprecedented dispersion across real estate
  • To bridge disruption, LPs should challenge GPs for consistency

Click the button below to read the Alternative Perspectives report and explore these subject areas and more:
Read Alternative Perspectives Report

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This material is intended for educational purposes only and is provided solely on the basis that it will not constitute investment advice and will not form a primary basis for any personal or plan’s investment decisions. While it is based on information believed to be reliable, no warranty is given as to its accuracy or completeness and it should not be relied upon as such. Goldman Sachs is not a fiduciary with respect to any person or plan by reason of providing the material herein, information and opinions expressed by individuals other than Goldman Sachs employees do not necessarily reflect the view of Goldman Sachs. This material may not, without Goldman Sachs’ prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient. This material is not an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction. Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Neither asset diversification or investment in a continuous or periodic investment plan guarantees a profit or protects against a loss. Information and opinions provided herein are as of the date of this material only and are subject to change without notice.

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