David Bouchoucha from BNP Paribas’ asset management division has argued that private debt and real assets could potentially offer good opportunities to investors during the COVID-19 outbreak.
Bouchoucha noted that these options can be attractive because private debt and real assets have proven to be resilient during times of economic uncertainty. He explained that many investors, including pension funds, are interested in holding alternative assets so that they can diversify their portfolios and potentially generate more income.
“You can expect a general repricing of risk as the perception of risk changes, as you would in any crisis, which is good for investors as it can create attractive opportunities to enter the asset class.”
He pointed out that private debt and real assets provide attractive diversification opportunities to active investors.
“[Private debt] is an asset class that involves investing in durable assets across economic cycles, in assets offering a liquidity premium and a risk premium over other (fixed income) assets, and in assets with predictable cashflows and thus offering a steady income.”
He believes that patient and sensible investors will most likely wait for more competitive prices and be able to generate more returns, because they are usually more selective than less experienced investors. He also mentioned that yields will probably remain relatively low for a long time, because central banks and governments have been offering a lot of financial support during the pandemic.
Bouchoucha recommended that investors looking for or interested in environmental, social and governance (ESG) factors when making investments may also want to consider private debt.
He also pointed out certain challenges. For instance, SMEs usually report less information than large enterprises, so it might be more challenging to determine how well they’re doing on ESG factors.
Bouchoucha confirmed that most organizations and businesses are focusing on sustainability during these challenging times. There are many different stimulus programs being offered to support initiatives that aim to improve energy transition processes and climate change. These initiatives can provide worthwhile investment opportunities.
“Now more than ever, investors should aim for resilient, quality investments. Private debt and real assets fit that description well in our view.”