Investors should be looking at solid investment opportunities in alternative assets as they have the potential to significantly boost their portfolio returns, according to investment professionals from Mercer.
The alternative assets in question are those that are totally uncorrelated to traditional asset classes such as equities.
More specifically, some of the assets Mercer is recommending investors consider are private debt and insurance-linked securities.
All of the opportunities in these areas have come about as a result of capital still being at a premium.
“Why we think private debt is a compelling opportunity now is basically a case of supply and demand. If you look at the supply side.the supply of capital in the past has rested with the banks and that is now constrained as the banks are very much focused on balance sheet repair,” Mercer global investment leader for alternative beta investments Dragana Timotijevic said.
It means investors are currently able to provide either senior debt or mezzanine debt to reputable companies at a premium, she said.
While private debt may be closely linked to private equity investments, it possesses almost no correlation to traditional asset classes.
In regard to insurance-linked securities, the opportunity comes from the need to insure events that are too major for insurance companies to handle.
“Basically this is a premise where a premium, or set amount, is going to be paid for an event that we don’t know when will happen or how big it will be when it eventually happens,” Mercer senior associate Ryan Bisch said.
An example would be coverage for natural disaster such as a hurricane or an earthquake, he said.
Because these events require an enormous amount of capital to cover, companies that need this kind of insurance are willing to pay excessive premiums to secure the funds needed thus creating the investment opportunity.
Again, this type of asset has no correlation to equity markets and other traditional asset classes, giving investor a true alternative and real diversification, according to Bisch.
