Year of the Ox reflections: Who will be topping the charts in alternatives?

Last year, AsianInvestor made 10 predictions about how markets would swing in the Year of the Ox, ranging from inflation surprises to cryptocurrencies. As we enter the Year of the Tiger, we examine how accurate our predictions were.

Which alternative asset class will climb most in asset owner portfolios?

Answer: Private credit

Verdict: Wrong

Alternatives definitely attracted a lot of attention from global asset owners last year but rather than private credit - which has been on a roll for the past three years - it was real estate that was the standout performer.

Bitcoin, Brent Oil and real estate ranked first three in terms of return, according to eToro report published on December 22.

A JP Morgan Asset Management (JPM AM) report said a potential rising rate environment for bonds, amid a strengthening economic cycle and heightened inflation expectations, all reinforced the essential and expanded role for alternatives in a diversified multi-asset portfolio.

Alternative assets across real estate, private credit and infrastructure are likely to see biggest inflows this year, it said.

“We expect both assets under management and direct lending deal flow to grow as investors continue to search for yield and as the asset class evolves from a core holding in most institutional portfolios to a core staple of insurance and individual investor’s investment portfolios as well,” David Chang, head of private bank distribution, at JPM AM, told AsianInvestor.

Asia private equity assets, meanwhile, are also set to rise, as they did in 2021.

“We have to prove that we can outperform public markets to our partners. Especially when China’s public markets are dominated by larger, more traditional economies.

"Private markets provide us with higher alpha return because that's where we're finding more innovative SMEs,” Rebecca Xu, co-founder and managing director at Asia Alternatives, told AsianInvestor.

ALSO READ: Real estate and private equity stand-out performers for SWFs in 2022: report

Of course, monitoring regulatory risk in China private equity is also essential.

“One has to take on this additional policy lens in China when investing into both public and private markets, but we also see growing opportunities there," Xu said.

"There are opportunities in what we think of as “green light” areas where government support  encourages private sector development, such as new energy and carbon neutral-themed assets,” she added.