Finally, Hindsight Is 2020

Finally, Hindsight Is 2020

Well…we made it. This has been the longest decade year of our lives. Whether it’s been personal or professional circumstances, or simply having been an investor in this market, none of us could escape the volatility-ridden year that was 2020. As we look to the future, there’s a lot to get excited about—a vaccine is being distributed and with it hopefully a society that return to normalcy sooner rather than later.

An Eye to the Future

In addition to life returning to normal, there’s a lot to get excited about in our industry over the next few years. Diversification once again proved its worth in 2020, supported by further adoption of alternative sources of beta. Our friends at Preqin recently updated their forecast for the future of the alternative investments industry, projecting 9.8% annualized growth in assets under management by 2025. This projected growth is not uniform, however, as private equity AUM growth (15.6%) is approximately five times more than that of hedge funds (3.6%) or real estate (3.4%). (It’s worth noting that we measure the universe of alternatives in a slightly different manner, but many of our insights align nonetheless.)

“Asset owners of all stripes have contractual obligations and funding expectations, but there is a sizable funding gap relative to the current investable assets in hand and said gap will likely not be closed with a traditional 60/40 stock/bond approach.”—Bill Kelly, CEO of CAIA Association

Alternative investments have seemingly hit the “sweet spot” for investors and managers alike. The traditional 60/40 portfolio is facing a structural headwind in most developed nations, as interest rates sit at rock bottom and public market valuations appear stretched relative to history. As a result, many investors have been forced to get creative with their asset allocations, looking to opportunities to properly diversify.

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