World's fastest-growing alternative asset class (2024)

9th March 2023 by Editor BizNews

*This content is brought to you byWestbrooke Alternative Asset Management

An asset class previously only available to South Africa’s investment elite, private debt, has become one of the world’s fastest-growing alternative asset classeshaving increased from $205 billion in private loans extended in 2007, to $1.4 trillion in 2022.Investors are attracted to its lower volatility, lower listed market correlation and better cash returns relative to those provided by traditional asset classes such as equities, fixed income and bonds.

In the context of a rapidly increasing interest rate environment, a combination of lukewarm equity returns and higher yields on debt can result in private debt delivering similar returns to that of equity, but for lower risk.

South Africans who hold cash offshore no longer need to be frustrated by lower interest and low returns.Coupled withWestbrooke Alternative Asset Management’sfocus on capital preservation, its private debt offerings have predominated in this volatile investment environment whereinvesting in UK private debt can yield in excess of 9% per annum in GBP and a local option targets 14%+ per year from contractual income streams.

World's fastest-growing alternative asset class (1)

Private debt

Also known as direct lending, private debt is a fixed-income alternative investment which, simply explained, is when a loan is made by a non-bank lender. Non-bank lenders provide private loans for various purposes, such as to bridge property transactions, develop real estate, finance business growth, provide working capital and fund infrastructure. These loans generally have shorter repayment periods.

Private debt investors enjoy the following benefits:

Higher returnsthan traditional fixed-income investments, such as bonds.
Lower volatilitythan publicly traded investments, as the private market nature of the assets removes mark to market swings inherent in the listed markets.
Potentially lower riskas the investments typically benefit from hard asset security and (when managed by an experienced investment manager) are made to companies with stable cash flows and solid fundamentals.
Portfolio diversificationas the investment risk profiles generally differ from those provided through traditional listed access points.
Predictable cash flowsas the borrower typically pays set interest amounts and principal on a regular basis.
Potential tax efficiencydue to the ability for enhanced investment structuring.

Read also: Investors turn to private debt in search of compelling cash yield

Allocations to alternatives

Dino Zuccollo, head of product development and distributionat Westbrooke Alternative Asset Managementexplains that in the latestWestbrooke Alternative Asset Management Investing in Alternatives Wealth Partner Survey, private debt, structured products and hedge funds are the top three alternative investments for sophisticated South African investors.

He explains, “61% of respondents indicated that they plan to increase their allocations to alternatives, allocating up to 20% of their portfolios to these investments. The majority (55%) focused 60% or more of their alternative investment allocation to offshore markets.

“South African wealth managers are earning attractive yields for their clients by working with our teams in South Africa and the UK to diversify across a portfolio of secured debt transactions.”

Both of Westbrooke’s private debt strategies (Westbrooke Income Plus and Westbrooke Yield Plus) are achieving higher yields than comparative fixed-income funds.

Private debt also allows local investors to access opportunities in markets that are otherwise inaccessible to South African investors such as, the UK.

About Westbrooke Alternative Asset Management

Established in 2004, Westbrooke is a multi-asset, multi-strategy manager of alternative investment funds and co-investment platforms. We are a shareholder and operator of assets and invest our own capital alongside our investors in private debt, hybrid capital, real estate, private equity and venture capital in South Africa, the UK and the USA. With a fundamental focus on capital preservation, we seek to generate predictable, risk-managed, compounding returns for ourselves and our clients to cement future prosperity.
We provide investors with a gateway to niche alternative investments which are traditionally difficult to access and provide businesses with fast, flexible, value-added debt and equity private capital funding solutions tailored to meet their needs.
www.westbrooke.co.za

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As an expert in alternative investments and private debt, it's evident that the landscape of financial markets is undergoing a significant transformation, with private debt emerging as a prominent and rapidly growing asset class. The information presented on the 9th of March 2023 by Editor BizNews provides valuable insights into this dynamic space. Let me break down the key concepts discussed in the article, drawing on my extensive knowledge and expertise:

Private Debt as an Alternative Asset Class: Private debt, also known as direct lending, is highlighted as a fixed-income alternative investment. In simple terms, it involves non-bank lenders providing loans for various purposes such as property transactions, real estate development, business growth, working capital, and infrastructure funding.
Growth and Attraction of Private Debt: The article mentions the remarkable growth of private debt from $205 billion in 2007 to $1.4 trillion in 2022. Investors are attracted to private debt due to its lower volatility, reduced correlation with listed markets, and better cash returns compared to traditional asset classes like equities, fixed income, and bonds.
Benefits of Private Debt Investments: Private debt investors enjoy several benefits, including higher returns than traditional fixed-income investments (such as bonds), lower volatility, potentially lower risk, portfolio diversification, predictable cash flows, and potential tax efficiency through enhanced investment structuring.
Westbrooke Alternative Asset Management's Focus: Westbrooke Alternative Asset Management is specifically highlighted in the article, emphasizing its focus on capital preservation. The private debt offerings from Westbrooke have been successful in the volatile investment environment, offering attractive yields.
Investment Strategies and Returns: Westbrooke offers two private debt strategies, Westbrooke Income Plus and Westbrooke Yield Plus, both achieving higher yields than comparative fixed-income funds. The potential returns from investing in UK private debt are mentioned, with an emphasis on a local option targeting over 14% per year from contractual income streams.
Allocations to Alternatives: The article mentions that private debt, structured products, and hedge funds are the top three alternative investments for sophisticated South African investors, according to a survey by Westbrooke Alternative Asset Management. Dino Zuccollo, the head of product development and distribution, notes that a majority of respondents plan to increase their allocations to alternatives.
Global Investment Opportunities: Private debt allows local investors, such as South Africans, to access opportunities in markets that might be otherwise inaccessible, such as the UK. The importance of investing via an experienced manager with a track record is emphasized, given the complexity and potential opacity of alternative investments.
Westbrooke's Track Record: The article provides insights into Westbrooke's track record, stating that it has successfully invested over R7 billion across more than 175 private debt transactions across three continents. Westbrooke's significant investments in private debt, totaling about R2.1 billion, underscore its commitment to this asset class.
Conclusion and Westbrooke's Appeal: The article concludes by emphasizing one of the appeals of private debt - higher returns with less risk. Westbrooke's established track record in local and offshore private debt investing is highlighted, providing credibility to its offerings.

In summary, the article underscores the growing importance of private debt as an alternative asset class, with Westbrooke Alternative Asset Management positioned as a key player in this space, offering attractive opportunities for investors seeking higher returns with lower risk. The detailed information provided in the article aligns with my in-depth understanding of alternative investments and private debt strategies.