[2024 Alternative Investment Forum] "Prepare for Mega Trends like Geopolitics and Decarbonization"

Shin Hwanjong, Executive Director of Investment Strategy at Korea Investment & Securities

In the future global alternative investment market, it was suggested that attention should be paid to mega trends such as ▲geopolitics and value chains ▲decarbonization ▲digitalization ▲demographic changes to set response directions.

Shin Hwanjong, Executive Director in charge of investment strategy at Korea Investment & Securities, stated this during his keynote presentation titled ‘Alternative Investment Trends: Risks and Opportunities’ at the ‘2nd Asia Economy Alternative Investment Forum’ held on the 12th at the Conrad Hotel in Yeouido, Seoul.

Shin Hwanjong, Head of Investment Strategy at Korea Investment & Securities, is giving a presentation on the topic "Alternative Investment Trends: Risks and Opportunities" at the 2nd Asia Economy Alternative Investment Forum held on the 12th at the Conrad Hotel in Yeouido, Seoul. Photo by Kang Jinhyung aymsdream@

The global alternative investment market's asset under management (AUM) size is expected to grow at an average annual rate of 8.4%, from $16.3 trillion at the end of last year to $24.5 trillion by 2028. Regarding this, Executive Director Shin said, “As the U.S. Federal Reserve’s tightening continues, increasing economic burdens, the default rate of global high-yield (speculative-grade) companies has been on the rise since hitting a low of 1.8% in December 2021,” adding, “If high interest rates persist, a sharp economic downturn occurs, and financial tightening happens, the default rate of U.S. high-yield companies could rise rapidly.”

Regarding interest rate outlooks, he focused on the fact that the ‘structural inflation environment’ has changed. He explained, “All adjustments have started from imbalances. Excessive easing cycles created bubbles, and excessive tightening cycles caused recessions,” adding, “For long-term investments, the period after the next one to two years is important, and there could be discord between the U.S. government and the Federal Reserve. The overall cost increases due to pursuing ESG (environment, social, governance), geopolitical risks, and monetary supply burdens could ignite inflation.”

Executive Director Shin said, “Since overseas private loans are shifting from a high-interest rate period to a rate-cutting period, there is skepticism about whether to continue raising 10% yields,” adding, “After the second half of the year, yield attractiveness may decrease. Investment opportunities in structurally stable assets have expanded during the high-interest rate period, and in the current market situation, senior loan yields meet absolute return standards, leading to active investments.”

He also emphasized that the overall economic philosophy of governments such as the U.S. is returning to the 1970s government-centered approach (Keynesian). Executive Director Shin said, “Alternative investors need to view the future direction of countries from a broad perspective,” adding, “After the failure of Keynesian policies, neoliberal policies under former U.S. President Ronald Reagan continued for decades since the 1980s, but neoliberalism has caused numerous failures, and there are signs of a return to government-centered approaches.” He added, “U.S. containment of China will also strengthen over the next decade.”

Along with this, he said, “The global value chain will geopolitically become a three-way competition. It could be reorganized into democratic alliances such as the U.S., Japan, Korea, and the European Union (EU); third-world non-aligned countries such as India, Brazil, and Mexico; and authoritarian countries such as China and Russia,” adding, “Since the next ten years are seen as the U.S.’s last chance to block China, conflicts between the U.S. and China are expected to intensify.”

He also urged that investment allocation according to the ‘speed’ of the decarbonization trend is necessary. He said, “Each government plans to reduce net emissions of carbon dioxide and methane close to zero by 2050 to mitigate the greenhouse effect,” adding, “In the U.S. presidential election, it is necessary to compare the opposing perceptions of candidates on the energy industry and environmental issues and set directions.” He continued, “Regardless of the candidate, there is a commonality in securing energy self-sufficiency, but if former President Donald Trump is re-elected, it is necessary to closely watch for situations that could trigger new mechanisms.”

He also introduced the steady decline in office rental rates in major U.S. cities. Executive Director Shin said, “Office rental rates in major cities on the U.S. West and East Coasts are steadily declining. They have only recovered to about 50% compared to before COVID-19,” adding, “San Francisco currently has a vacancy rate of 34.5%. The timing of stabilization of rental rates in major U.S. cities should be estimated to consider the timing and ratio of alternative investments.” He further added, “If office attendance decreases, the use of commercial facilities also decreases,” adding, “In this case, logistics utilization will increase, and the trend of digitalization will expand.”