The business environment globally has recently experienced great volatility arising from a soaring cost of doing business, increased taxation, rising inflation, high interest rates and declining consumer purchasing power. All these aspects are constraining the demand for goods and services.
Indeed, a recent Central Bank report shows that private sector CEOs in Kenya are greatly concerned that prevailing macroeconomic volatility, geopolitical tensions, and a global increase in commodity prices may shatter their businesses.
Against such turmoil, investors are required to derive measures to secure their investments. And while many choose to ride the headwinds, experienced investors diversify their portfolios, with alternative investments being particularly attractive. Recognising the limitations of traditional investment in a dynamic business environment, these astute individuals are looking towards venture capital, private equity, hedge funds, real estate, commodities and collectables.
Driven by the allure of alternative investments, institutional investors are poised to ramp up their involvement in this sector. The latest insights from a 2024 report by Clearwater Analytics, a worldwide provider of SaaS-based investment management solutions, reveal a compelling trend: 55 percent of institutional investors surveyed express intentions to augment their allocation to alternative investments within the next five years.
This statistic underscores a significant shift in strategy, as these investors recognise the potential benefits of diversification and the pursuit of the potentially higher returns that alternative assets offer. This growing enthusiasm for alternatives signals a broader trend in the investment landscape, where traditional asset classes are supplemented or even supplanted by non-traditional options to achieve optimal portfolio performance.
Despite the focus of the Clearwater report being on American companies, the principles and success factors identified resonate strongly within the African context. The ability to consistently deliver substantial returns and safeguard capital is a testament to the effectiveness of alternative investments.
This gains even more significance against an economic landscape characterised by lacklustre returns in traditional asset classes, often failing to outpace inflation.
Many other opportunities are emerging from varied alternative investment options, and I am looking forward to Kenyan investors' heightened participation in the space.
The writer is the Head of Alternative Investments at the Old Mutual Investment Group.
