J.P. Morgan Asset Management released its fourth annual Global Alternatives Outlook for 2022, providing a 12 to 18-month outlook on alternative asset classes while highlighting views from CEOs, CIOs, and strategists from the firm's $200+ billion alternatives platform.
This year’s report is titled “Seeing the Forest and the Trees,” encouraging investors to consider megatrend opportunities across the alternative asset classes as it becomes difficult to generate stable income and alpha through public markets alone.
"Our 2022 Global Alternatives Outlook is focused on helping our clients see the forest and the trees, by considering not just the short-term outlook for markets and economies, but also the bigger picture challenges and opportunities across alternative investments," said Anton Pil, head of alternatives at J.P. Morgan Asset Management.
Recently, multifamily real estate debt has become popular, given the stability and potential for rent growth as an inflation hedge. The report urges investors to focus on mortgage lending given the low household debt service ratios.
Global investors have become alert to the threat of rising interest rates, drawing more attention to real estate and real assets as alternative sources of yield and inflation protection.
The report emphasizes that quality is key in 2022. Leading strategists expect that many real estate investors will have the opportunity to increase rents at or above inflation rates due to low supply and high market demand. Yet, sectors with high vacancy rates and excess supply pipeline may see revenues fall below the inflation rate unless rents keep up with the pace.
Foreign real estate investors should look to European offices, the report states, where properties now afford the greatest mispricing opportunities. The impact from the pandemic and shift to remote work has accelerated the sector’s ongoing transformation.
Meanwhile, structural supply shortage and affordability issues continue to make the case for residential assets look attractive. Low current yields and restrictions on rent increases will limit the upside to this kind of investing, but the sector’s improving liquidity and stable returns suggest that investor demand will continue to be strong.
Additionally, lenders should not be willing to sacrifice underwriting standards as "Covenant-lite" loans represented more than 80% of U.S. institutional leveraged loan issuance in 2021, a share that has risen steadily since the crisis.
The private credit market has grown to encompass ‘tier-one' billion-dollar mega-deals while loan volume has burgeoned, which creates a more competitive market.
There also continues to be a preference for middle-market lending. Medium-sized, both privately owned and publicly traded, provide a less-crowded niche that many investors prefer.
The title of the report can also be taken literally as it urges investors to consider investing in timber. Everybody and their mother knows that supply disruptions and high cost building materials slowed housing construction for the better part of the pandemic. Currently, pent-up housing demand and low interest rates are spurring demand for lumber even more. A timberland portfolio can act as a portfolio diversifier, the report states, generating income from wood products while potentially serving as an inflation hedge.
