Welcome to our monthly digest about investing into alternative assets and digital lending companies. We covered some of the top headlines from the previous month.
We bring these and more stories to your attention below.
Alternative Assets and Private Debt
- The Top Five Alternative Investment Sectors In 2023
- Europe Braces for a Sharp, Abrupt Real Estate Reversal
- Alt Investments Gain Momentum With Wealthy Investors
- Private-debt market braces for stormy seas
With investors desperately looking for alternatives to the S&P 500 due to its poor performance in recent months, investors have turned to a wider range of investments than ever before. It is important to remember that having a diversified portfolio is always a wise decision. Furthermore, investors must consider the industry their investments currently reside in and any potential impacts due to larger economic trends in order to determine if their current investment strategy remains viable or if they should consider reallocating funds into alternative investments. Here are just a few of the top emerging opportunities in alternative investing:
- Private Equity Healthcare Investments
- Merchant Debt/Factoring
- Artificial Intelligence
- Real Estate
- Ancillary Trends
For investors in European real estate, the coming weeks will reveal a harsh reality. The trophy properties of London and Frankfurt serve as an indication of the damage to come; investors have been desperately searching for ways to handle financing issues as private debt markets freeze due to rapidly increasing interest rates. Appraisals done at the end of the year are going to show dramatic drops in valuation, leading to loan covenant breaches and necessitating emergency measures such as sales and infusion of extra cash. This looming crisis is clearly visible in some of Europe's most sought-after addresses.
Despite some signs of stability in the Eurozone, such as in Italy and Spain, investors in the UK are facing a slump. In fact, there are now worries that Germany could be next. However, investors have one saving grace - private debt funds. These credit funds have faced strong growth over the past decade and data shows that insurers and alternative lenders had a higher share of new UK property loans than major banks in 2019. This is great news for investors who cannot access traditional bank loans, as it gives them another option when looking to gain important financing for their projects.
Investors with $5 million or more in total investable assets are embracing the surge of alternative investments in their portfolios. A recent report from Cerulli Associates noted investors now allocate an average of 9.1% to alternatives such as private equity, hedge funds and private debt, up from 7.7% last year. Advisors also predict this number will continue to increase to 9.6% by 2024. With investors becoming savvier about the different avenues for asset growth, it's exciting to think about how this could potentially benefit them in the long-term.
Advisors cited private equity as having the biggest increase at 50%, followed by private real estate (45%), and direct/coinvesting (32%) - investment prospects not typically available before. Furthermore, investors are heavily eyeing other avenues such as private debt in order to maximize their portfolios even further. With investors already being increasingly aware of alternative investments, it looks like this trend is only likely to be gaining steam in the future.
As investors continue to pour money into private debt strategies, the sector could be facing its biggest test yet in the less than certain economic outlook of 2023. Rising interest rates, combined with aggressive monetary tightening and a global recession, are making investors nervous about their private debt exposure, as companies increasingly struggle to service their borrowing costs. All these factors have created a restrictive environment where deals for alternative lenders have become scarce—potentially inspiring investors to look elsewhere for investments. Yet, will the private debt market be able to withstand these challenges and come out on top? Only time will tell.
- As venture capital markets cool, startups consider debt and loans as alternative financing options
- 2023 Consumer Lending Study - Trends, Statistics, and Forecast (USA)
- Why new rules on BNPL lending won’t be enacted any time soon
- LendingClub to cut 225 jobs as interest rate rises impact loan demand
Startups have had to grapple with the reality of potentially flat or down rounds as a result of high revenue multiples inflating their valuations prior — leaving them facing more dilution and demanding that financial backers mark down the company in portfolios, delivering bad news to limited partners. Ouch!
Despite high consumer demand and the resulting price increases, serious delinquencies are on the rise in certain key loan categories. In fact, recent research by TransUnion predicts that more Americans will struggle to make their payments come 2023 – with unsecured personal loans, vehicle financing & credit cards topping the list of offenders. Consumer debt growth doesn't have to be a worrying sign for the economy or individuals. It could indicate that people feel secure in the state of affairs – though it's true we've seen some tricky times recently, with increasing interest rates and all! Still, if you're looking at taking out credit then just make sure you know your payments are comfortable before getting caught up in too much borrowing - stay smart even when things don't look so rosy.
Consumer protection and access to buy-now-pay-later services are both important, but crafting the right legislation is no easy feat. It's a challenging task for authorities: how do you make sure consumers can get these financial tools without overstretching their wallets? It may take until 2024 to get it all sorted as they are looking to provide a comprehensive control over BNPLs while still providing required consumer protection.
LendingClub is facing a challenging environment, and as such has seen the need to lay off 225 – that's almost one-sixth of its employees - in order to save up between $25 million and $30 million. The decision comes after rising interest rates had an adverse effect on loan demand for the digital lending platform. It's certainly not easy news for those staff who are impacted by this difficult decision but it does seem necessary due to market conditions beyond their control.