Monthly Agenda October 2021 – Alternatives

Global sustainability/responsible investment strategies have seen strong growth over recent years and include: Socially Responsible Investing (SRI), Impact Investing, ESG Investing, Sustainable Investing, Triple Bottom Line and Corporate Social Responsibility (CSR). It is estimated global sustainability strategies represent $US35 trillion in size. The sector was initially dominated by exclusion lists and the divestment movement. More recently, integration – where ESG risks are incorporated into funds’ broader mandates – is now the clear leader. ESG investing has particularly resonated with large global institutions– pension funds, insurance companies and sovereign wealth funds many of which have announced significant increases to their investment in ESG-related strategies. Similarly, Australian and New Zealand super funds are taking a leadership role in establishing ESG at the core of their investment strategies.

Chart 13: Global Growth of Sustainable Investment Strategies 2016-2020

Source: Goldman Sachs

Private Equity (PE) exit activity continues to break records with total exit activity surging passed long term average levels for the fourth straight quarter. Total value of PE exit activity year to date is already above $US630 billion, which is 50% higher than the previous record full year total value set in 2018 of $US412 billion. PE managers are seeking to capitalise on the spread between public and private market multiples whilst corporate balance sheets are sitting on record cash levels and looking for suitable takeover targets to deploy this cash.

Chart 14: Private equity exit activity breaks records 

Source: Pitchbook

The ratio of bitcoin to gold price has surged to over 35 in recent weeks with some commentators suggesting institutional investors are now seeing the digital currency as a preferred inflation hedge over gold. Recent developments with the launch of the first US listed bitcoin ETF and comments from the Federal Reserve indicating they won’t follow China in banning bitcoin have helped ease investor concerns over the relatively young asset class. Sky high volatility however continues to accompany bitcoin with average weekly volatility 6 times that of gold, acting as a sign of caution for investors considering an allocation to the cryptocurrency.

Chart 15: Investors rotate to bitcoin as inflation hedge

Source: Bloomberg

Stephen Dickinson
Investment Analyst

Darragh Kennelly
Investment Analyst