Facing rising interest rates, credit spread compression and continued volatility in equity markets, investors are shying away from risk, according to a new survey conducted at the ALTSLA conference by Money360. In fact, 43 percent of alternative investors polled stated they expect to take on less investment risk over the next 12 months.
So where is the smart money going? To find out, Money360 polled investors and investment managers, including wealth managers, family offices, hedge fund managers and institutional allocators.
Fifty percent of respondents said they expect to increase allocations to physical assets, including real estate or gold. The survey also found that 50 percent of investors expect to increase allocations to private debt over the next 12 months.
“The length of the current bull market and recent extreme volatility has many investors looking at alternative investments,” said Evan Gentry, founder and CEO of Money360. “Private debt in particular can provide an attractive alternative to traditional fixed income since many types of private debt investments are characterized by high yields, short durations and returns uncorrelated to the broader equity market. Many investors are just beginning to appreciate the investment merits of private debt.”
Asked about target yield for debt opportunities, 41 percent of investors polled reported they’re seeking 7 percent– to 10 percent returns on debt opportunities. Interestingly, 41 percent of investors polled said they expect the 10-year U.S. Treasury to be at 2.76 percent to 3.25 percent in 12 months, demonstrating the quandary with traditional fixed income as the yield is inversely related to the price.
“Equity markets are overvalued and traditional fixed-income investments offer minimal yield, making private debt relatively attractive to investors,” said Dan Vetter, CIO of Money360 and president of M360 Advisors, an alternative investment management company. “Alternative fixed-income products like M360 Advisors’ open-ended fund vehicles allow investors to capture attractive illiquidity premiums on short-term loans secured by income-producing commercial real estate while protecting against the two primary risks of credit investments, interest rate risk and the risk of principal loss. We expect allocations to private debt to continue to increase in the current market environment.”
