Our CEO Benjamin Davis shares his insights on the investment themes set to take precedence this year.
As global uncertainties look to continue, there’s also a lot to feel positive about. Here’s five key opportunities to look out for.
1. Alternatives 2.0
One question that I think some fund managers who focus on alternative asset classes like us, will find themselves asking in 2024, is ‘how alternative are we really?’. Over the last few years, we’ve seen significant capital inflows into alternative asset classes such as private credit and real estate, but in an increasingly competitive space, managers have to do more to set themselves apart from the crowd.
Moreover, as interest rates – although maybe peaked – are likely to remain high versus historic numbers, we expect investors will be interested in alternatives where active management can produce sufficient alpha.
We have to continue to look for emerging areas. They might be more difficult and complicated, but will be where managers can really earn their stripes. What starts as alternative becomes mainstream in time, so it’s about finding tomorrow’s sectors today. I expect that best managers will be those that use the year to innovate and unearth new areas.
2. Natural capital: next big thing
And on that note, natural capital stands out as one of these exciting spaces of opportunity for the year ahead, and was a big area of focus at the recent COP28. By natural capital I’m referring to applying an economic lens to the natural environment. For example, looking at how land can be repurposed to provide a return to investors while also taking carbon out of the atmosphere or increasing biodiversity.
These solutions will take time to develop, but I feel that parts of natural capital are coming out of its nascence and are now mature enough to be investable. And we’re seeing this interest already. From institutional investors seeking out strategies that can show tangible impact as we grow closer to 2030 net zero targets, and from retail investors who are increasingly looking for strategies that match their values.
This year will be the year that we see less talk and more walk in this space– where we’ll see more investment strategies that deliver for investors and the environment alike.
3. Levelling up on the up
Not only are investors looking for strategies that match their values, they are also increasingly interested in the details of the local impact their money can create. If you then pair this with the growing opportunity to unlock investment that addresses inequality, I think we’ll see a lot more businesses beginning to explore more regional strategies this year.
We think that sustainable infrastructure could be one of these strategies, given the way in which it can provide the backbone for a new wave of green jobs across the country. The social impact of this infrastructure is fully aligned with its financial returns – the more households and businesses that benefit from using this sustainable infrastructure, the higher returns it will generate.
In the longer term, I’m excited to see how the industry can crack the economics of regionally-focused investment that is truly holistic. For example, unleashing a region’s economic potential typically requires investments in housing, infrastructure and SME growth all at the same time. We acknowledge that tackling society’s biggest challenges will clearly require co-ordinated investments across a wide range of sectors, so any progress on this next year will be a helpful development.
4. UK coming back around
The UK, as we know, has been out of favour with investors, but we are now seeing signs of a welcomed recovery. Interest rates appear to have stabilised and inflation seems to have peaked. We have also seen the AIM market bounce back in the last couple of months.
UK-focused investment has lots of upside having gone through a period of significant discount. It’s a buyer’s market with strong businesses at attractive prices and growing M&A activity as a result. So, not to be too cliché, but I am cautiously optimistic when I look to 2024.
We also have the Mansion House reforms, and anything that encourages investment into early-stage companies, startups or that ecosystem and can keep capital flowing in the UK, is positive. One of my main concerns is restoring stability and confidence in the UK economy. We’re definitely seeing that improving and this makes me feel that the future is brighter, creating opportunity for investors.
One final thought is a hope for the year, which is that more financial services companies start the journey to become B Corporations. We’ve always known that people want to buy from and work for companies that ‘out-behave’ and do the right thing, even when no one is watching – for us, this is what B Corp is all about. We also believe that, in turn, it leads to better performance.
For us, being a B Corp crystalises a commitment to a wider base of stakeholders in a very real and tangible way. It is very hard to fake. We find that it helps us to build trust with customers and it resonates well with investors.
Financial services is an industry that influences society, both in terms of customers and in deciding where money is directed and how effectively it is used. The industry has an enormous impact on people’s lives and the planet, so we have a duty to look after both these things. This is why we should be encouraging frameworks like B Corp to drive better, more transparent business.