JP Morgan Asset Management (JPMAM) singled out global transport, secondaries and US real estate as its areas of highest conviction in its seventh annual Global Alternatives Outlook.
The US-headquartered asset manager said that transportation was benefiting from a reordering of supply chains and trade routes due to geopolitical risk, while also offering a buffer against inflation.
Similarly, with real estate, it noted that the sector stood to benefit from a pro-growth environment which would help boost net operating income as well as offering a hedge against inflation.
Further, it described US real estate as providing a “generational” investment opportunity as valuations appeared to be bottoming out in many sectors.
The asset manager also said that secondaries offered an opportunity for investors to benefit from robust economic growth, while the emphasis on more mature assets minimised the impact of the j-curve.
Overall, JPMAM identified three major macroeconomic trends that would impact alternatives and noted that different asset classes would fare well in relation to those trends.
First, pro-growth policies in the US such as the proposed tax reforms and plans for deregulation should invigorate deal-making activity, creating a supportive backdrop for both private equity and private credit.
Second, while trade tensions and tariffs could prove inflationary, many strategies were designed to thrive in this environment. JPMAM singled out infrastructure, particularly regulated utilities, due to its contractual ability to raise end-user prices, as well as real estate, where higher operating costs are typically passed through to investors via rent increases.
Finally, there is the impact of divergent monetary, with the US and the UK possibly about to pause interest rate cuts, while the European Central Bank is more likely to continue cutting due to anemic growth in the region. JPMAM also noted that China and Japan were at opposite ends of the spectrum in terms of monetary policy.
In this type of environment, the asset manager believes that hedge funds are likely to do well in navigating the increased volatility that came about as a result.
In general, the case for private markets is “compelling” due to stretched valuations in public markets and positive stock-bond correlations among other factors, according to JPMAM.
