Jun 24, 2019

Investors demand more access to alternative investments

Photo: Fabrice Coffrini/AFP/Getty Images

As deals from venture capital, private equity and real estate firms produce more headlines about billion-dollar deals and millionaire backers, investors are clamoring for ways to sink their teeth into so-called alternative investments. Big banks and asset managers are finding ways to help them do it.

Driving the news: Indexing giant Vanguard Group has reportedly started discussions with private-equity firms about a push further into alternative investments.

  • The Wall Street Journal reported the news Sunday, less than a week after reports that Goldman Sachs is putting together a 4-unit division with around $140 billion in assets to invest in private companies and other alternative assets like real estate.

What we're hearing: There's been growing interest in the space from clients at multinational investment firm UBS. Suni Harford, UBS Asset Management head of investments, says "not a day goes by" that she doesn't get questions from clients about alternatives.

What's happening: Many believe private equity has significantly outperformed stocks over the past decade, even though the data is more ambiguous. But as more companies like Uber, Slack and Pinterest come to market already worth billions, demand is growing to get in on the early stages of investment.

  • The same is happening with real estate and various loan markets, which generally offer higher yields than most bonds.

Harford says demand for alternatives also is rooted in increased comfort with private markets despite the lack of regulations and safeguards afforded by public markets.

  • "It's filling the gap that was left in the credit crisis, because banks just aren't lending," she told Axios at a recent event in the bank's Manhattan headquarters.
  • "There is this whole second level of investor capital coming in to fill the gap on private credit investing: loans literally to individuals or small companies and whatnot. So [there's] a tremendous amount of interest from people in a variety of ways that private credit can be offered. There's not a client that doesn't want to play there."

Further, says UBS head of real estate and private markets Joseph Azelby, alternatives are attracting flows from investors of all stripes — from high net worth individuals to institutional money managers who are pulling capital out of bonds, because of their historically low yields, and out of stocks, because of their successful run.

  • "That's driving interest in private credit, infrastructure, real estate and it's going to drive 10 other things that folks in our business are going to think of to tap into that need for diversification."

Yes, but: "The flow into alternatives is not actually showing up in hedge funds," said Barry Gill, head of active equities at UBS, who previously worked on the firm's multi-strategy hedge fund.

  • "Hedge funds have been net givers of flow, or least they have not participated anywhere close to the same extent" as other alternative investment vehicles.

Go deeper: The hedge fund moment is over

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