JP Morgan releases alternative 2022 outlook urging investors to embrace megatrends to weather tough public markets
NEW YORK, January 13, 2022 /PRNewswire/ — JP Morgan Asset Management today released its fourth annual Global Alternatives Outlook report, providing a 12-18 month outlook for all major alternative asset classes and highlighting the views of CEOs, CIOs and strategists from the company’s $200+ billion-alternative platform.
This year’s report, entitled “Seeing the forest and the Trees”, encourages investors to consider the opportunities presented by megatrends in alternative asset classes, as it becomes increasingly difficult to generate stable income-driven returns and alpha in public markets alone. .
“Our Global Alternatives Outlook 2022 aims to help our customers see the forest and trees, considering not only the near-term outlook for markets and economies, but also the broader challenges and opportunities for alternative investments,” said Anton Pil, Head of Alternatives, JP Morgan Asset Management. “While investors are clearly challenged by both stretched valuations in traditional markets and persistently low bond yields, we see ample opportunity for investors willing to embrace megatrends through alternatives in areas such as than ESG and technology.”
“We are constructive on the global economy heading into 2022, but recognize that returns on investment in public markets may be harder to come by,” said David Lebovitz, Global Markets Strategist, JP Morgan Asset Management. “Against this backdrop, it will be essential for investors to embrace alternatives as they navigate a world characterized by moderate expected returns, historically low interest rates and high volatility.”
The Global Alternatives Outlook 2022 also provides a framework for investing in hybrid-type alternatives – alternative sectors and styles that exhibit similar characteristics to equities and fixed income – to generate both stable income and of the alpha.
Some of the key industry themes revealed in the Alternative Global Outlook 2022 include:
- Strong Alpha opportunities in 2022 with VIX unlikely to return to pre-pandemic levels of 15-20 in the next 12-18 months.
- Inflation both a headwind and a trading opportunity – As inflation poses a challenge to investors, hedge fund managers could thrive.
- Secular themes continued attention – Biotechnology, sustainability, cybersecurity some of the key themes implemented.
- Governments have pledged to transition to a low-carbon world, which has made investors even more enthusiastic about long-term investments in infrastructure, especially renewable energy.
- Strong governance, carbon disclosure and improving sustainability should be the main themes underlying the infrastructure outlook.
- Maritime trade volumes have returned to pre-pandemic levels and expansion is expected to be in line with 4.4% growth expected in 2021.
- Investments will be required for R&D and innovation of new technologies, modification of existing assets; designing and building new assets and investing in new global infrastructure to support new fuel types.
- Logged forests can sequester carbon – a natural solution to meeting global emissions targets.
- Forests provide investors with other environmental, social and governance opportunities, from biodiversity to rural jobs.
- Pent-up demand for housing in the United States and low interest rates are driving demand for lumber.
- A portfolio of forest land can serve as portfolio diversification, generating income from timber products while potentially serving as a hedge against inflation.
- A focus on strong alliances – Covenant-lite loans accounted for more than 80% of US institutional leveraged loan issuance in 2021, a share that has been steadily increasing since the crisis. We are not willing to sacrifice strict underwriting standards.
- A more competitive private credit environment – Private credit has grown to encompass even billion-dollar mega-deals and lending volume has exploded, creating a more competitive market.
- A persistent preference for middle market loans – Mid-sized companies, both publicly traded and private, are a less crowded niche that many of our investors prefer.
- Priority to mortgage loans given low household debt service reports – Multifamily real estate debt remains popular, given the stability and potential for rental growth as a hedge against inflation.
- Strong investor demand – Driven by the expectation of superior returns from the private market (compared to the public market). Investors are also rebalancing target allocations, given high distribution volumes, and non-traditional and crossover investors have increased their stake, particularly in pre-IPO opportunities.
- An expanding set of opportunities – Technology innovation is one of the most powerful forces generating venture capital, growth capital and buyout opportunities, not only among traditional technology companies, but in almost every sector of the economy.
- Venture capital, growth stocks and buyouts present key opportunities – Technology innovation and adoption generate attractive valuations in venture capital and growth capital. Exciting opportunities exist in primary funds and co-investments in lower middle market buyouts.
- Growth is back – and with it, inflation – Global investors, alert to the threat of rising interest rates, are increasingly focusing on real estate and real assets as alternative sources of yield and inflation protection.
- Quality is key – In 2022, we expect many asset owners will have the opportunity to increase rents at or above the rate of inflation in real estate sectors characterized by moderate supply and strong fundamentals. Conversely, areas with high vacancy rates and excess supply could see income fall below the rate of inflation unless rents keep pace.
- Significant opportunities in a European office – European office buildings now offer the greatest potential opportunities for mispricing. Although there is growing recognition that offices will remain central to our working lives, the pandemic has accelerated the ongoing transformation of the sector.
- Strong residential demand – Structural supply shortages and affordability issues continue to drive investment in residential assets, which remain attractive. Although current low yields and restrictions on rent increases are likely to limit the upside, improving sector liquidity and stable and reliable yields suggest that investor demand will remain strong.
To view the full Global Alternatives Outlook 2022, click here.
About JP Morgan Global Alternatives
JP Morgan Global Alternatives is the alternative investment arm of JP Morgan Asset Management. With over 50 years as an alternative investment manager, 201 billion US dollars of assets under management and more than 700 professionals (in September 30, 2021), we offer strategies covering the full spectrum of alternative investments, including real estate, private equity, private credit, hedge funds, infrastructure, transportation and liquid alternatives. Operating from offices across the Americas, Europe and Asia Pacific, our independent alternative investment engines combine specialist knowledge and singular focus with JP Morgan’s global reach, vast resources and powerful infrastructure to help achieve each client’s specific objectives. For more information: jpmorgan.com/am.
About JP Morgan Asset Management
JP Morgan Asset Management, with assets under management of $2.7 trillion (as of 09/30/2021), is a global leader in investment management. JP Morgan Asset Management’s clients include institutions, retail investors and high net worth individuals in all major markets around the world. JP Morgan Asset Management offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity.
Performance quoted is past performance and is not a guarantee of future results.
Investing in alternatives does not guarantee return on investment and does not eliminate the risk of loss.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements on financial market trends, which are based on current market conditions. We believe the information provided here to be reliable, but do not guarantee its accuracy or completeness. This material is not intended to be an offer or solicitation to buy or sell any financial instrument. The opinions and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only. References to future returns are not promises or even estimates of actual returns that a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and should not be taken as advice or construed as a recommendation.
JP Morgan Asset Management is the trading name for the asset management business of JPMorgan Chase & Co. and its subsidiaries worldwide. Including, but not limited to, JP Morgan Investment Management, Inc.
SOURCEJP Morgan Asset Management