Private Markets: From Alternative to Imperative Asset Class

Oct 10 2021 | 1 min

In the 5-year capital market assumptions report issued in August 2021 report, UBS foresees a sub-2 percent return in nominal terms for a traditional 60% equities and 40% bonds portfolio in the next five years.

Amid these extremely low expectations from public markets, investors are in a quest for alternative solutions. Naji Nehme, Chief Investment Officer at Petiole Asset Management AG, shares his conviction in the importance of allocating to private markets during an interview with Finews.com.

Below are the main highlights:

  • Private markets as a long-term asset class have consistently offered a premium to the public markets. Over the last two decades, a portfolio invested in private markets consisting of private equity, real estate and private debt achieved double the returns of a similar 60/40 public markets portfolio at lower risk. We believe this outperformance will continue.

  • Investors face challenges in adopting alternative asset class in their portfolios. Some of the following reasons: high dispersion of returns between the different sponsors which makes the selection process difficult and time-consuming; access to the top tier is limited to a few institutional investors with high minimums required; and fees are quite high as they are mostly charged on committed, not invested, capital.

  • There are three key factors for successful investing: invest for the long-term, select quality assets, and allow the compounding of returns to work in your favor.

  • By investing in private markets, we are forcing the compounding of returns to work in our favor i.e. targeting a steady return over time is safer than trying to hit high returns in the short term. Let time work for you rather than the reverse.

We invite you to read the full article here.

 

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