Predicting 2020 “will be a year of moderate global growth and contained inflation, with risks skewed to the downside,” J.P. Morgan Asset Management last week released its second annual Global Alternatives Outlook.
The report offers a look across key alternative asset classes over the next year to 18-months, with a focus on hedge funds, private credit, real estate and private equity.
The broad outlook, according to J.P. Morgan, is more optimistic, if cautiously so, than economists and analysts have been in the last year or two. Says the report, “The trajectory of growth in 2020 will likely be uninspiring, with the rest of the world looking a bit better but the U.S. economy growing at a trend-like pace. The risk of recession should remain contained, but other risks may continue to build. The pace of profit growth looks set to decelerate further on the back of falling margins, which could potentially lead businesses to pull back on hiring.”
“In sum, 2020 looks to be a year of moderate growth, contained inflation and accommodative policy. While the potential for a further deterioration in corporate profitability presents a risk to this view, a recession over the next 12 months is not our base case.”
For hedge funds, the report sees opportunities from the ongoing digital transformation of industry, “fueling capex and rising demand for software and services.” Fund managers should “increase the integration of Environmental, Social and Governance (ESG) criteria and sustainability across their businesses and investment activities.” And, “Value is seen as one of our best bets.”
For private credit, “we are witnessing demand for exposure to U.S. housing and consumer credit. One popular strategy has been mortgage origination to the self-employed and those who are strong financially but are disqualified by their FICO score.” Other opportunities exist in distressed lending and non-performing bank loans and in commercial mortgage lending.
For private equity, the report sees opportunities in small private companies, those with revenues between $10 million and $100 million. In addition, “E-commerce, cybersecurity, and software-as-a-service (SaaS) are a few areas where we continue to see tremendous promise.”
For real estate the strongest US potential J.P. Morgan sees is in single-family rentals, biotech, self-storage and data centers.