On the go: The coronavirus crisis presents a number of opportunities for savvy investors, but schemes should be wary of inflated estimates of return, according to a new report from Bfinance.
The onset of global recession has sparked an uptick in the number of managers launching ‘opportunistic’ strategies investing in distressed assets, both in public and private markets.
The report argues that, while there are a number of unique investment strategies made available because of the economic disruption caused by Covid-19, “generating outsized returns from economic disruption is far from straightforward.”
Private credit and real assets are potentially lucrative investment options, it says, as distressed borrowers and stressed investors “are under pressure to sell”, but the report cautions that investors should expect “significant competition for underlying positions, impacting the pace of deployment and available returns.”
It also warns that, though they may be billed as potential goldmines, returns on private credit investments may in fact be “more private equity-like in profile, with little in the way of cash flow and an uncertain exit date.” Fees from managers are also typically high in the sector.
Profits from investments in real assets may be similarly slow to materialise, and there may be “there may be higher cost leakage, particularly with real estate transactions.”
Commenting on its release, the report’s lead author Trevor Castledine, senior director of private markets at Bfinance, said: “I hope the results help to give investors clarity and context for making decisions about how to invest into what could be a very rewarding opportunity set; but where risks can be high and selection of a suitable strategy and an investment partner to deliver it, is key.”
