HNW investors gearing up for alternative investment opportunities

High Net Worth private investors are preparing to seize alternative asset investment opportunities this year amid the economic fallout from Covid-19, as alternatives remain a vital portfolio diversifier, according to research by Connection Capital, the specialist private client investment business.

Some 87 per cent of private investors are planning to maintain or increase their allocations to alternative assets over the next 12 months, according to a survey of 233 Connection Capital clients with a total estimated net worth of GBP2.2 billion.

A total of 80 per cent of respondents say they will consider new alternative asset investments this year. Forty per cent are ready to invest immediately.

Just over half (53 per cent) say they have increased their cash reserves since the start of the coronavirus crisis and the most common reason given is to ensure they have liquidity when attractive investment opportunities arise.

Claire Madden, Managing Partner at Connection Capital, says: “We are seeing clear buy signals from private capital for alternative assets and relevant strategies despite – or because of – the wider market turmoil.”

“High Net Worth investors are being pragmatic. They have lived through economic crises before and seen first-hand that some excellent investment opportunities can emerge in the aftermath and that some investment strategies become more attractive. They don’t want to miss out.”

“These private investors are thinking with a trader mentality. They want to be liquid so they can act when they a see good deal or fund strategy, with a view to maximising returns when the market recovers.”

“Our client base is already well diversified into alternative assets with over a third now allocating a fifth or more of their portfolios to alternatives. But in times of mainstream market stress and extreme volatility, the value of having a broad mix of different assets to smooth out risk and drive returns becomes clearer than ever.”

Investors are more optimistic about the outlook for private equity, private debt and alternative asset fund opportunities with relevant strategies (particularly private equity secondaries and preferred equity, distressed debt and non-correlated niche strategies) than for mainstream quoted equities. 

Some 87 per cent signal an intent to invest in alternative asset funds, 79 per cent in private equity, and 67 per cent in private debt compared to 64 per cent who say the same for the stock market. However, commercial property is one sub-sector of alternative assets that investors remain wary of for now.

Interestingly, in the current climate High Net Worth respondents say that producing income is not an important characteristic for new investment opportunities, as the hunt for good deals takes precedence.

Madden says: “This healthy private investor appetite is good news for businesses. Government support won’t last forever, and private capital, which can offer a huge amount of flexibility in the way it is structured, will be essential for restoring companies to strength in a post-Covid world.”

“The findings of this survey will inform our product strategy and deal construction, ensuring we continue to offer our clients the right sorts of alternative investment opportunities for them to build a diversified and robust portfolio.”