By Dania Zinurova, Portfolio Manager, WAM Alternative Assets
1 August 2023
Alternative assets present a compelling diversification opportunity for investors as the uncertain economic outlook shifts focus towards constructing more balanced portfolios; providing a more consistent return and making portfolios more resilient across economic cycles.
An alternative investment can provide investors with a predictable and resilient income from assets like infrastructure with long-term contracted revenues and real estate with long lease agreements, complementing traditional equity portfolios by adding diversification benefits.
Rising interest rates, persistent inflation and the threat of a global economic slowdown are creating investment opportunities among, mispriced, good quality businesses and assets.
What are alternatives?
Alternative assets are those outside traditional asset classes such as listed equities and bonds. The opportunity set is broad and offers investment strategies across the risk and return spectrum, from lower risk and predominantly income producing investments (e.g. mature infrastructure, real estate) to higher risk and mainly focused on capital growth (e.g. private equity). Those investments are often only accessible by institutional investors with large minimum investments for entry, often in excess of $10million.
Within the WAM Alternative Assets (ASX: WMA) portfolio we provide retail shareholders with access to unlisted investments in infrastructure, real estate, real assets (i.e. water rights and agriculture), private equity and private debt.
Those investments offer exposure to critical parts of the economy and provide essential services that Australians rely on in everyday life including healthcare, airports, roads, rail, energy and farming.
For investors, adding alternative investments to a portfolio means accessing different risk and return characteristics, which can improve overall investment outcomes.
Visionary portfolio
Since Wilson Asset Management took over as the investment manager for WAM Alternative Assets in October 2020 we have worked to revitalise the portfolio, focusing on delivering a balanced return to shareholders.
Key changes include adding new asset classes like infrastructure, healthcare and logistics real estate and private debt to further diversify the portfolio and provide more reliable income. WAM Alternative Assets has also completed several successful exits from its investments and continues to invest and redeploy the capital received from these exits into new investments across long term investment themes.
Quality assets
Investing in WAM Alternative Assets means accessing businesses and assets that are not typically available to retail investors.
WAM Alternative Assets has exposure to assets including:
• Gosford Private Hospital, a healthcare facility on NSW Central Coast with a long term, inflation-linked lease;
• Regional airports including Sunshine Coast Airport, a popular tourist destination with a 99-year lease;
• Advara Heartcare, Australia’s largest provider of cardiology services with 90 metro and regional centres;
• Retail Zoo, the holding company behind brands like Boost Juice and Betty’s Burgers;
• Slater and Gordon, the national law firm known for its high-profile class actions; and
• Scyne Advisory, the public-sector consulting business recently spun off by PwC.
We believe these kinds of alternative investments are an attractive diversification opportunity for investors, particularly in the current economic climate.
Diversification
WAM Alternative Assets aims for a balance of income producing strategies and growth strategies within the investment portfolio.
Income strategies are designed to provide more predictable and resilient income to shareholders from assets like infrastructure with long-term contracted revenues and real estate with long lease agreements. Income return from those investments are often linked to inflation, providing protection against rising prices. Private debt investments also come with protection against rising interest rates since most private debt loans are floating rates.
Growth assets include private equity mid-market buyouts, equity investments in fast growing companies and turnaround and transformation deals. More opportunistic strategies within real estate, real assets and infrastructure may offer capital growth as well. They tend to have some development or re-development component as part of the assets growth strategy.
These are businesses and assets that are benefiting from strong economic and demographic tailwinds like healthcare and the energy transition.
As an ASX listed company, WAM Alternative Assets offers all investors an opportunity access to alternative assets providing complementary diversification benefits to their investment portfolios.
If you are interested, the best place to start is wilsonassetmanagement.com.au
