In the past ten years, the real estate, private equity and infrastructure industries have enjoyed exponential growth. While this is welcome, we at BNY Mellon believe the investment landscape is on the brink of a significant, long-term shift.
The alternative investment industry has been presented with a unique historic opportunity. On the one hand, a combination of disparate, but profound and deep-rooted forces – macroeconomic, demographic, environmental – are driving an unprecedented, broad-based demand for investment in real assets, property and infrastructure, in both developed and emerging markets. On the other hand, institutional investors are hungry for yield, but starved of attractive investment options. Low interest rates and asset-price inflation fueled by quantitative easing (QE) are forcing investors to look further afield for returns, but periodic financial market shocks and a rolling program of capital, prudential and market structure reforms are fraying investors’ nerves. As such, institutional investors are increasingly looking to the alternative sector to guide them through fast-changing and sometimes unfamiliar terrain, and to shed light on new opportunities that satisfy their investment criteria. To meet this challenge effectively, alternative investment managers will not only need scalable investment expertise to identify and value a wide range of assets and businesses, but also a flexible business model that enables them to deliver on heightened expectations for transparency and client service, while achieving sustainable growth.
- Fundamental demographic and macroeconomic shifts are creating investment demands that far outstrip the reach of government finances, and must be met by alternative capital sources;
- Population growth in Africa and parts of Asia will be a strong driver of GDP levels, increasing demand for transport and communications infrastructure to support commerce, and driving up consumer spending; population aging in all regions will impact medical and social infrastructure needs;
- Greater urbanization will increase pressure on transport, communication and social infrastructure as well as housing in all regions, but the more rapid the growth, and the lower the existing levels of development, the greater the need for planning and investment;
- In developed economies especially, the large Millennial cohort will favor multifamily, rental accommodation in thriving urban centers, over traditional suburban home-ownership, while also driving a radical re-purposing of retail and office real estate;
- Long-term shifts in public finances are creating a severe infrastructure funding gap, but are also providing a widening range of opportunities for private investment in energy (especially green initiatives), utilities, transport and communications infrastructures;
- Driven by poor absolute returns in traditional asset classes and the need for diversification in current macro-economic conditions, investors are already increasing allocations to real assets, including infrastructure, pushing up valuations in mature investments / developed economies;
- To channel investment flows into a widening range of opportunities – thereby growing market share, serving client needs and meeting the aforementioned funding gap – alternative investment managers must adopt more flexible business and operating models.