- The investment trust structure makes alternatives volatile even when the underlying assets are not
- Infrastructure trusts feel the competition from bonds but should fare better if gilt yields decline
- Private equity looks risky but a lot of potential bad news is priced in
The last time interest rates were where they are today, more than 15 years ago, two-thirds of the investment trusts in the infrastructure sector and all of those in the renewable energy sector did not yet exist. For some of the vehicles private investors use to gain exposure to alternatives, the current environment is very much uncharted territory, and difficult to navigate at that.
The table belowshows how trusts investing in alternative asset classes have fared in the past two years. Performance was firmly negative for property and infrastructure in 2022 and 2023, while private equity recovered this year after a less than stellar 2022. As energy prices fall back, renewable energy and commodities did much worse this year than last.