Covid-19, political unrest, market volatility increase the importance of private markets in 2021 and beyond, says to Mercer research

New strategic research from Mercer focuses on what the coming year holds for alternatives, outlining some of the issues investors may want to follow closely in an effort to optimise their portfolios.

“We are seeing that though investors have been tested this year, the experiences of previous crises have made them more resilient. There were unorthodox challenges such as not being able to vet new managers in person, but clients continued to put capital to work, especially with existing investment manager relationships across all private market segments,” says Raelan Lambert, global head of alternatives at Mercer. “In 2021, investors should consider stretching their risk appetites and consider their allocation to real estate. Although the pandemic will continue to challenge the property market, 2021 is likely to be an opportune time for entering the asset class with a medium- to longer-term investment horizon. Initially, investors should prioritise allocations to the largest, most-liquid markets, where price discovery is furthest along.”

The white paper, Private market challenges: Optimising your portfolio and top considerations for private markets in 2021, includes issues such as:

• Real estate: the state of current market conditions and opportunities to potentially capitalise on post-Covid changes.

• Natural resources: the reasons behind the significant challenges facing the market and the opportunities inherent in the sector.

• Infrastructure: the growth and attractive performance of the market as well as the challenges associated with managing significant market changes.

• Private debt: how the landscape has changed from the global financial crisis to the 2020 pandemic.

• US private equity and venture capital markets: how advice that clients receive from their legal counsels on terms and conditions could potentially misalign with managers’ interests.

• European private equity: how the Covid-19 virus has compounded the uncertainty created by Brexit.

• Asian private equity: the effect of the pandemic and the ongoing political tension between the US and China.

Garvan McCarthy, head of alternatives EMEA and Asia Pacific at Mercer, says: “Private markets have been a bedrock of successful investor portfolios for the past decade. The opportunity set remains rich but prevailing political and economic challenges caused by the pandemic need to be acknowledged and understood. Investors across the UK and Europe are increasing their exposure to these asset classes and we are excited to work with our clients to bring these opportunities to their portfolios over 2021 and beyond.”