Trends Watch: Alternatives – Options and Diversification
March 26, 2020
By Elana Margulies-Snyderman
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Nelson Chu, Founder & CEO, Cadence.
What is your outlook for alternative investments?
I continue to have an optimistic outlook for alternative investments even in light of the recent market volatility. Now more than ever, investors are searching for optionality as they look to diversify into uncorrelated investments that can still generate meaningful yield. Alternatives have emerged as a viable asset class that has captivated investor interest and will continue to grow in demand as this general macro uncertainty prevails.
Where do you believe the greatest opportunities exist and why?
The rise of alternatives has exposed all the problems within this nascent market -- lack of transparency, information asymmetry, mispriced assets, and more. This presents a tremendous opportunity for someone to transform how alternative asset data is captured, standardized, and syndicated out to all the relevant stakeholders.
What are the biggest challenges you face?
Alternatives have been opaque for a reason, whether it’s because of the existing parties who have a vested interest in capitalizing on the information asymmetry or the lenders who have struggled with incorporating the latest technologies. Penetrating both sides of the market and demonstrating the value proposition of a standardized normalized dataset in order to provide pricing power for the lenders and more diversification for the buyers will be a continuously evolving challenge.
What keeps you up at night?
The market size for alternatives like private credit is now bigger than ever. This rise has been directly correlated to the low rate environment we’re currently in and it has yet to weather the likes of a recession at its current size and scale. Underwriting, first loss coverages, default rates; all of it is relatively untested as it remains to be seen how these assets will perform in the coming months when borrowers begin to struggle to pay back. It is on us to continue to maintain our high underwriting standards and dedicate our resources to monitoring performance as that will be paramount in helping us protect investor principal during this prolonged downturn.