2023 Alternative Opportunities

Overview 

In our 2023 edition of Alternative Opportunities, we are proud to introduce views on a variety of private asset classes from Invesco Investment Solutions and our partner firms. Additions include real estate debt and views across a variety of sub-asset classes, as well as a new framework for interpreting the levels of attractiveness within these assets and in the context of a whole portfolio.

Within this piece, we’ll present a framework for analysing across and within alternative markets, utilizing our expertise in this space and the vast dataset available to us. Hopefully, this transparency into our investment process will help inform your investment decisions as we continue to update this document on a quarterly basis. 

Executive summary

• Private credit: As we consider direct lending going forward, the opportunity appears to be quite attractive. As direct middle market loans are generally a floating rate opportunity, the increase in base rates over the last year introduced a material increase in the return profile of the asset class. Importantly, new issuance and new vintages not only benefit from increased yields, but stronger credit protection, increased call protection, lower leverage and lower loan-to-values.
• Private equity: We establish a neutral rating on private equity as valuations are moderating and pockets of opportunity appear in private-to-private transactions. At a high level, this an environment that favors dry powder and new investments relative to investments made over the last several years, which in general have yet to be marked down. There are opportunities for growth equity firms to provide capital for private companies that would have looked to access the IPO market.
• Real assets: 2022 saw significant increases in global interest rates, and as a result in the funding costs for real estate. The full effect of this on the pricing and fundamentals of real estate are yet to be realized, but it is clear that both the timing and quantum of the adjustments will vary by region, market, and real estate sector. As a result, across all global real estate markets, we are carefully monitoring conditions. We are overweight real asset credit due to increased yields, reduced competition from other lenders and the protected position against any potential weakening of the fundamentals of the assets.