What Alts Investors Are Looking at Now: J.P. Morgan

Infrastructure: J.P. Morgan says infrastructure will remain a valuable diversifier and source of yield and income in 2021, noting that investments in private core infrastructure by their nature are expected to be relatively cycle-agnostic, given that they represent essential services. An increasing number of yield-centric investors are allocating to private infrastructure. “Like real estate 20 or 30 years ago, private core infrastructure is fast becoming a standard part of institutional asset allocation.”

(Photo: Shutterstock)

Transportation: Access to capital is critical for participation in this capital-intensive sector, and this has grown even more critical given the pressing need for investment in environmentally sustainable technology. JPAM sees a virtuous circle starting to emerge in which banks, bigger asset owners and high-quality end users are all focused on cooperating to reduce carbon emissions and promote sustainability. JPAM believes investors can find good opportunities in a transportation sector that is increasingly adopting sustainability goals and providing attractive, predictable, long-term returns.

(Photo: Shutterstock)

Private credit: JPAM is finding assets and companies that should return to normal in the post-pandemic world, but is steering clear of or selling companies and assets whose long-term decline has been accelerated by new trends or shifts in behavior, especially companies that increased leverage. The firm likes asset-based property lending for income, and expects to originate loans at better spreads and terms than before the pandemic. It also likes to use modest leverage to enhance income, given the low cost of borrowing.

(Photo: Shutterstock)

Private equity: JPAM sees attractive opportunities among companies with revenue of $10 million to $100 million, as these businesses can generally be purchased at lower valuation multiples with transaction structures less reliant on leverage. Two areas in which it says opportunity exists are in software-as-a-service and health care.

JPAM notes that co-investments, which offer limited partners an opportunity to invest directly in an individual private company alongside a sponsor, have the potential to provide return enhancement, attractive economics, and increased visibility and discretion.

(Photo: Shutterstock)

Real estate: According to JPAM, the industrial/logistics sector appears to be the greatest beneficiary of accelerating megatrends — the continuing shift to e-commerce, along with technological leaps in connectivity, cloud computing and the internet of things, is creating demand for both traditional industrial assets and specialized core assets, including data centers, cold storage and truck terminals.

The pandemic has battered retail properties by hastening the trend toward online purchases, but retail property types have varying levels of susceptibility to online shopping, and “necessity” retailers have fared better than those considered discretionary. JPAM sees significant opportunity for operators that can reimagine and develop spaces in line with emerging retail models.

As for the office sector, JPAM is more optimistic than most analysts, noting that although working from home has accelerated, an optimal, sustainable home/office balance depends on economics and human nature, and may vary across businesses and regions. It bases its optimism on the ongoing need for collaboration for productivity, the growing share of office-using jobs and the need for companies to plan for peak office usage, even with flexible working arrangements.

(Photo: Shutterstock)