19 May Laurion, in search of profitability and security, continues to bet in alternative investments, even in Coronavirus time
The crisis caused by COVID-19 has generated unusual levels of volatility in the financial markets since past February.
The global stock markets have suffered significant losses, in some cases dropping more than 30%, leading some stock indexes to their record lows of the past 10 years, as it was the case of Euro Stoxx 50, which it is the index made up of the fifty largest and most liquid stocks in Eurozone. Until now, it was never seen such destruction in the stock market value in only three weeks.
At the same time, the fix income market is even more suffocated.
The expansionary monetary policy carried out by the main central banks from 2008 to mitigate the financial crisis, has led, in some cases, to negative interest rates. Therefore, the possibility to lower even more the interest rates is very limited, namely for the countries or economic areas that are increasing their debt levels to exit from the crisis caused by the COVID-19. The central banks are still injecting unlimited liquidity to emerge from the economic effects of the pandemic, but without obtaining the desired impact. Facing this scenario, asset managers, banks and insurances are obliged to continue to buy riskier assets to obtain higher returns.
This situation has caused tremendous concerns to investors that, once again, are asking themselves if their asset allocation is the correct one, searching alternative assets where to invest with the goal to obtain higher returns, to diversify and to stabilize their investment portfolio. Also note that, for the experts and managers, the alternative asset strategies have gained weight in the search of the profitability to the point that the consensus of the market is that up to 20% of all the asset allocation should be in these types of assets.
To prove this, please note that the Vice-president of the CNMV, Ana Martínez-Pina, at the ceremony of the XXXI edition of Funds Awards of Inversion Expansion-Allfunds, defended a regulatory amendment to harmonize with Europe the commercialization of the alternative investment funds between retailers, in order that investors with assets under 500.000 euros (after assessing the suitability of the investor) could access to alternative vehicles, as long as the investment represents less than the 10% of their total assets and with a minimum investment of 10.000 euros, with the goal to contribute for the diversification in a portfolio, looking for an interesting risk/return ratio.
Two factors that have always been considered negative or created a barrier to invest in these types of assets are their illiquidity and long-term investment horizon. Due to what has happened in this crisis and in previous ones, the conclusion that we arrived is that these two factors aren’t that important, since the recommendations that are given to the investors are not to redeem positions when the stock and bond markets fall, but to pursue a long-term investment objective because it is when a predetermined profitability objective is achieved. Therefore, if the investment in traditional financial assets must have a long-term component and stability in order to achieve its targets, the factors that would supposedly be a barrier to invest in alternative assets are no longer.
The crisis caused by the COVID-19 has noted that from now on the world is going to be different. It has disrupted the way of investing. The correlation between different assets grew and this implies reviewing the expectation for investment returns. The investor (private and institutional) will no longer require only profitability, but also the security of the assets in which it invests.
For all these reasons, Laurion Group believes, even more today, that its alternative investment strategies are the adequate to be invested, since, in the long term, they guarantee its main objective of capital preservation.