Due to their distinct characteristics, we take a differentiated look at selected liquid and illiquid alternative investments.1
In the equity long/short space, European-focused managers have continued to outperform their U.S. counterparts. They have been helped by the impact of ECB QE and positive European corporate earnings revisions, both of which helped create a tailwind for the European equity market overall. Even within the equity-market-neutral space, European-focused managers have fared better than U.S. or global-focused managers as stock returns within the various possible investment styles have shown healthy dynamics and dispersion. Short strategies by both traditional long/short equity managers and equity-market-neutral strategies should start producing more market outperformance as interest rates start to normalize. This has in the past resulted in more differentiated individual stock and equity sector returns, something that is likely to be broadly positive for such strategies.
Over the next year, U.S. real estate net operating income (NOI) growth is predicted to remain at healthy levels. Pro-cyclical sectors such as office and industrial real estate stand to benefit the most. We have also observed a significant decline in vacancy rates. Prime offices and shopping centers should fare particularly well in southern Europe. Trade flows into and within Europe are also set to rise, boosting demand for logistics space. In Asia, Japan continues to be a bright spot especially for logistics assets, but a few markets (such as Seoul central business district) have an excess supply of office space.
Global investment activity, driven by buyout funds, totaled $41.3 billion in the first quarter of 2015, well below the $78.7 billion recorded in the previous quarter. Investment activity in both North America and Europe fell in the first quarter, from $31.8 billion to $19.9 billion and from $33.5 billion to $15.8 billion, respectively.3 Half of European limited partnerships (LPs) and a third of North American LPs have aggregate commitments to private equity below their target allocations.4 Investors, especially in North America, are on the lookout for good gas- and oil-focused private equity funds, given recent price developments.
1 These portfolios may not be suitable for all investors.
2 Not available in discretionary portfolios. Hedge funds and other investments classified as non-mainstream pooled investments are not considered as suitable investments for retail clients in the United Kingdom. Illiquid investments may be difficult to acquire or dispose of. The product’s ability to respond to market conditions may be impaired and investors may experience adverse price movements on liquidation.
3 Dealogic, M&A Analytics, as of 6/12/15
4 Coller Capital, Global Private Equity Barometer Summer 2015, as of 6/12/15
* Commodity Trading Advisor