Private Assets

Private assets provide volatility buffer

private assets volatility

Investments in companies below the radar are being used to offset inflation and volatility for long-term investors.

Private assets are continuing to offer investors protection from inflation and volatility in the listed share market as they provide access to assets in growth sectors while retaining distance from daily market movements, according to a global investment manager.

Schroders alternative director – private assets Claire Smith said private assets, which are shares in unlisted companies, have been a safe haven for investors who have been using them as an satellite investment alongside core assets such as listed shares and fixed income.

“Private assets have been providing a buffer against volatility and a safe haven because they have a different valuation methodology compared to how listed markets are traded and valued,” Smith told smstrusteenews.

“Rather than dealing with market sentiment and volatility that comes with trades and inflows and outflows we use a more fundamental mathematical company valuation while also positioning our portfolio towards defensive sectors such as healthcare, consumer staples and business to business service providers, such as technology companies.”

She added while these asset classes are similar to those available to retail investors via share markets and investment funds, private assets focused on companies operating below the radar and perhaps had yet to reach the scale required to become a listed asset.

“We are not trying to break into new markets but focus on smaller companies where growth will be based on the growth of the economy or increasing operational efficiencies and where they have no external expertise to help them automate a process or hire salespeople or identify an expansion opportunity, which is why this part of the market has been quite resilient.”

She said Schroders has a target of 10 to 12 per cent net return per annum and in the last 12 months it has exceeded that and returned around 25 per cent earnings before tax and other fund deductions.

According to Smith private assets are also of appeal to SMSF investors as the barriers to entry had fallen in recent years providing access to an asset class previously only available to institutional investors.

“Our minimum investment amount is $20,000 but if accessed via a wrap platform through an adviser then the minimum is whatever is set by that platform which can be a few hundred dollars in some cases,” she explained.

“As such, during 2020/21 we saw private assets being used as a substitute for fixed income but they have also been used to replace other alternative and defensive assets including hedge funds.

“However, we do advise people to take an investment horizon of at least five years due to less liquid nature of these assets and also because withdrawals can only be made quarterly rather than monthly or daily.”


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