How To Use Alternative Assets For Refuge In Uncertain Times

With the world economy still recovering from the COVID-19 pandemic and now dealing with the Ukraine-Russia crisis, markets face a great deal of uncertainty. Michael Steingold (director, private markets) examines whether now is the time for investors to consider a multi-asset approach to take advantage of alternative property sectors.

While traditional sectors struggled, the alternative real estate sectors earned their stripes during the pandemic. They offered investors access to long-term growth trends with low correlations to the broader economy. As we come to grips with the ongoing tragedy in Ukraine, we are reminded of the diversification power these sectors offered when COVID-19 was at its peak.

What is an alternative asset?

The sectors in this category are myriad and include student housing, data centers, medical offices and self-storage, among many others. Office and retail spaces faced existential crises due to government-mandated lockdowns worldwide, but many of these non-traditional investments performed well. Their value during periods of market disquiet has been unambiguous, especially as rising commodity prices and credit spreads now threaten global growth. Procyclical property sectors, like industrial, may be vulnerable in an environment of lower growth.

A different approach

In the past, investors would ask whether alternative assets should be classed as real estate at all. We believe that a more nuanced question would be: given the diversity of business models in these sectors, and considering the overlaps with other asset classes, could we get better outcomes from a multi-asset approach?

This strategy involves considering the full opportunity set of alternative sectors, which blurs the boundaries of the property asset class into lower-risk infrastructure and higher-risk private equity. Combining the wide variety of these investments thoughtfully can create an agile and well-diversified portfolio. Taking this approach gives investors the flexibility to focus on the bigger picture. Rather than trying to fit asset-level exposures into a particular silo, the multi-asset approach allows us to consider these investments as part of a total portfolio.