Private Alternatives Outlook 2021: The New Normal?

There are many words to describe financial markets in 2020, but “normal” certainly is not one of them. Equity markets the world over were rattled by the imminent slowdown in global growth, culminating in the fastest bear market on record in March, only to recoup losses (and then some) just a few months later. In the realm of fixed income, liquidity issues were front and center at the peak of the crisis, forcing governments to step in and guarantee liquidity in order to reassure investors, but low rates still plague those seeking safe sources of income. The commodity market wasn’t spared – for the first time in history, oil buyers were being paid to take on product after benchmark prices for WTI crude plunged to negative $37 a barrel. The “new normal”, it would seem, is anything but.

Yet while these traditional asset classes stole headlines, equally interesting were the investments that didn’t spend much time under the spotlight: infrastructure; agriculture; private debt; real estate; and private equity. These nontraditional assets flew under the radar, but for all the right reasons; as the market panicked and volatility set in, these asset classes performed as expected, generally experiencing relatively minor volatility while generating positive income. In short, they brought stability to a volatile and uncertain world.

If we had to describe 2020 in a few words, it would be “wake up call.” Equity investors have been enjoying one of the longest bull runs on record with few bouts of volatility. However, in 2020, investors were reminded that volatility and market drawdowns are not a matter of if, but when. Similarly, bondholders have witnessed the seemingly endless decrease in rates over the last few years. But those seeking safe sources of income are now attuned to the fact that government yields nearing 0% won’t be able to meet their needs for the foreseeable future thanks to Jerome Powell saying that he’s “not even thinking about thinking of raising rates.”

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