Alternative Investments Shine Amid Rising Interest Rates
Patricia Anna Pyttlik
Coming out of the Covid pandemic, interest rates were held to record lows by central banks around the globe, all while governments propped up their economies with much needed financial stimulus.
However, these measures resulted in a spike in inflation, economic slowdowns, and worries of a recession. The Federal Reserve ever since has been forced to hike interest rates for the last several quarters, leaving the stock market in an uncertain predicament.
Alternative Investments in this Interest Rate Environment
In the current economic environment with rising interest rates, a common perception exists that smart money will flock back to deposit-type products. However, this notion doesn’t align with the reality of sophisticated investment strategies, and many savvy investors are delving into alternative investments.
By historical standards, interest rates are right around average. Keep in mind in the 1980s, they were approaching 20%. Most experts feel the Federal Reserve will raise interest rates once more this year before they start leveling off and even decrease sometime in 2024. Simply put, this isn’t a high enough interest rate to warrant a substantial investment in deposit type products.
Opportunities in Private EquitySecondaries
The volatile movements in the public market and the subsequent reactions from private equity holders looking to exit have created a fertile ground for alternative investments. The unrest has prompted some private equity investors to seek a way out, thus opening up a door for those ready to enter, especially in the secondary space.
These shifts present an opportunity for yield with a high level of diversification and liquidity terms that allow investors more flexibility compared to primary private equity investments. Besides, most investors are under the impression that this asset class is are unavailable to them. This is simply untrue, and becoming accredited is far easier than most people think. Given the present circumstances, now may be the perfect time to the secondaries space.
Consistency Amid Chaos
The unpredictable movements of interest rates and the seeming indecisiveness of various central banks have created market volatility that leaves many investors unsure of their next steps. In this uncertain setting, many hedge funds have shown their ability to generate returns with a low correlation to the broader market. This consistency in performance is what sets hedge funds apart from other investment options. Some hedge funds strategies may even be able to enhance returns leading to higher gains during market rally.
By providing a return stream that isn’t tied to the fluctuations of the market, these funds offer a sense of stability to investment portfolios. In a financial environment where certainty can be hard to find, this ability to maintain consistent gains becomes highly attractive to investors, making alternative investments a good choice for those looking to secure and grow their investments.
Sailing Smooth in Stormy Seas – The Future of Alternatives
Alternative investments continue to attract attention due to the opportunities in private equity and the agility of quality hedge funds. Factors such as moderate interest rates and market volatility make a compelling case for these strategies, and the future for alternative investments looks promising for those seeking both growth and stability.
At FundKernel, we simplify investing. With guidance, clear reporting, and careful due diligence, we’re here to help you make wise choices.
Patricia Anna Pyttlik is in charge of Investor Relations at FundKernel Limited and also the Executive Director of Rostrium Grand Limited. She has extensive experience of nearly a decade in advising institutional and large private investors on portfolio allocation and investment ideas, covering a diverse range of asset classes and strategies. Patricia was responsible for clients across Europe at Credit Suisse Zurich, Julius Baer and EFG Bank Hong Kong, advising and managing multi-billion dollar investment portfolio.