By Dania Zinurova
In an environment of high economic uncertainty, ensuring an investment portfolio is diversified has never been more crucial. As a result, institutional and individual investors alike are increasingly looking towards alternative assets, which constitute a variety of unlisted asset classes with different characteristics beyond public equities, fixed income, and cash.
The WAM Alternative Assets (ASX: WMA) investment portfolio demonstrates how investing in unlisted asset classes can offer complementary benefits to an investment portfolio. WAM Alternative Assets is unique in offering retail investors access to a diversified portfolio of alternative assets, which are generally only available to institutional investors.
An inflation-sensitive portfolio
Assets such as infrastructure, which often have long-term contracted revenues, provide investors with a predictable and resilient income stream. Income returns from these investments are typically linked to inflation, enabling them to protect against and often benefit from rising prices. Given infrastructure by its definition encompasses services and businesses that are necessary for the efficient functioning of economies, they typically represent inelastic demand and are therefore defensive across economic cycles.
To gain exposure to infrastructure, WAM Alternative Assets invested with Palisade Investment Partners. Palisade generates outstanding risk-adjusted returns by investing in mid-market infrastructure and infrastructure adjacent assets in a sustainable manner. Sensitivity analysis conducted by Palisade Investment Partners across their portfolio has demonstrated that for a 1% rise in inflation, there is a corresponding 1% increase in the value of the portfolio.
Palisade also adopts rigorous risk management practices to ensure it is not exposed to rising debt costs. The majority of base interest rate exposure within the portfolio is hedged for the medium term, and the debt profile is managed to avoid the simultaneous maturity of significant debt at once.
One of the infrastructure assets WAM Alternative Assets has exposure to is the Sunshine Coast Airport, which is one of Australia’s largest regional airports and the gateway to the popular tourist destinations of the Sunshine Coast and Noosa regions. Regional airports such as Sunshine Coast Airport play a vital role in terms of economic and social cohesion, stimulating tourism and employment, as well as facilitating access to essential transportation services. In addition, they can help to reduce congestion at major hub airports.
Renewable energy
Palisade was an early investor in the renewable energy sector, and currently manages and operates six wind farms and one solar farm across four Australian states. This year, Palisade established a renewable energy platform, Intera Renewables, which aggregated its operational renewable energy assets into a single entity of scale.
Palisade aims to continue expanding its renewable energy portfolio, which will deliver environmental benefits and provide critical support to the core energy grid as the industry transitions away from coal-fired power stations.
These essential services and assets exhibit high levels of resilience during periods of economic stress, which is why infrastructure provides strong diversification benefits within a portfolio and offers the opportunity for attractive risk-adjusted, income-driven returns.
In today’s environment, an optimal portfolio isn’t just diversified but also strategically resilient. WAM Alternative Assets is the only listed investment company on the ASX that offers investors access to a diversified portfolio of alternative assets typically accessible only by institutional investors.