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 North America 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 alternative asset classes, 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 here to read the report and explore these subject areas and more.
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