With recession talk building for 2024, geopolitical tension, and interest rate hikes weighing on investors, Fred Hubler looks at how the biggest players are responding: institutional investors, who collectively manage around $20 trillion in assets. He notes that the old playbook of leaning on bonds during a stock market slump proved unreliable in 2022, since traditional, liquid investments can still fall in a selloff even when the underlying assets remain fundamentally solid. Alternative investments, often illiquid to some degree, are becoming a safe haven from that kind of investor panic.
Hubler zeroes in on private equity as one area institutions are turning to. Since it isn’t traded on public exchanges, private equity carries the illiquidity typical of alternatives, but with proper planning, institutions can invest without needing quick access to the money. He cites Natixis, noting institutions relied on private markets for yield when rates were low, and are now turning to them for capital appreciation, since private companies answer to a smaller, more patient pool of investors whose valuations reflect intrinsic value rather than public market fear.
Even the largest institutions are rethinking their old bonds-as-a-safety-net playbook – that alone says something about where this is headed.
Hubler covers the credit-market angle too, over on Forbes, Are Alternative Investments Part Of Your Economic Outlook?