By Dania Zinurova
The key macroeconomic concerns we are currently observing include heightened volatility of financial markets, uncertainty surrounding inflation and the corresponding trajectory of interest rates, availability of debt and the impact on consumer sentiment. Broader structural shifts, such as the emergence of artificial intelligence (AI), its potential impact on the economy and society, coupled with more pronounced geopolitical tension globally, create significant uncertainty. This makes it more challenging to assess factors such as inflation and monetary policy from a traditional economic cycle perspective.
One of the benefits of investing in alternative assets is the ability to perform throughout different macroeconomic cycles. We have positioned our portfolio to ensure extensive diversification of the underlying investment exposures. For example, infrastructure assets often act as a hedge against inflation, as much of the revenue is generated through inflation-linked contracts, while private debt benefits from rising interest rates because its returns are set to increase along with the base interest rate.
WAM Alternative Assets (ASX: WMA) invests across a range of strategies including private equity, infrastructure, real assets, private debt and real estate. The portfolio is now invested in over 130 underlying assets and businesses with various maturity, risk and return profile and different thematic tailwinds. We focus on investing in privately owned assets and businesses that are more likely to be resilient throughout economic cycles. We achieve this by making investments in fundamentally high-quality businesses with appropriate levels of leverage and extensive analysis of downside scenarios during investment due diligence.
We have primarily been investing in Australian private equity opportunities, underpinned by strong investment themes with long-term tailwinds, such as digitalisation, the growing ageing population, increasing demand for food and the energy transition.
From a private capital perspective, now is a good time to deploy available capital, as valuations are relatively attractive. However, the volume of M&A transactions has decreased, and we have observed fewer deals overall. In the current environment, focusing on quality and conducting thorough risk assessments is critical. We expect that with the easing of monetary policy in Australia and globally, the WAM Alternative Assets portfolio is well positioned for further growth and strong realised returns.
