Home / Investing / Retiree longevity fueling income product shift from public to private

Cashed-up retirees in the market for yield are finding that it’s increasingly being delivered by assets that aren't on the stock market but still have a palatable risk profile.

Both the looming retirement of all baby boomers and an increase in longevity – our current average lifespan is 20 years longer than it was in 1960 – are rapidly changing investment habits, with private assets increasingly coming to the fore.  

While traditional fixed income products like bonds and term deposits are foundational assets for retirees and will be for some time, the growing retiree cohort is also exploring income producing assets that may offer greater return.

A report by the Sydney-based research house Foresight Analytics confirms that extended longevity is creating some interesting disruptions in the investment opportunity set in relation to the challenges of saving for retirement.

“For much of recent history, the burden of retirement was dealt with by the government in Australia or by corporations in the US and the UK,” the report states. “Yet, at the very moment when the burden has transferred to individuals, we have seen (and will likely continue to see) some of the most attractive income-producing assets move from public to private markets.”

At the same time, baby boomers are the investment cohort with considerable clout. [Younger generations are generally dealing with cost-of-living pressures, mortgages and rising rent payments.]

As the report says, “ask any financial adviser group about the demographic of the investors funding the bulk of their assets under management, and they will tell you that most are boomers, some with considerable net wealth. Boomers are currently either in retirement or in the latter stage of their accumulation lifecycles.”

Financier and multi-strategy alternative investment manager, Alceon, has been one beneficiary of this investor search for private assets via its Australian Property Fund (it does hold 50 per cent listed assets) and Debt Income Fund.

Alceon head of wholesale capital, Omar Khan, says there can be no doubt that the stronger risk-adjusted returns relative to traditional fixed income instruments (bonds, term deposits) through conservatively positioned bilateral loans secured by real assets are enjoying investor appeal.

“Other factors at play for the Alceon Debt Income Fund – it has returned 10.41 per cent for the 12-months to April 30, 2024 – is the diversification generated by a portfolio of 56 senior secured loans across multiple sectors (residential, industrial, office) with a conservatively managed weighted LVR of 61.9 per cent,” he explains.

“Investors also get consistent income streams with monthly distributions while providing downside protection to investor portfolios given the lower correlation with equity and bond markets,” Khan adds. “This reduces the overall volatility of an investor’s portfolio.”

Since early 2022, Alceon has been writing new loans on a floating rate structure as opposed to a fixed rate structure. Khan says: “This has ensured investors in the debt funds benefit from any increases to interest rates. Additionally, some of our loans have also been written with a rate floor that protects investor returns if rates eventually fall.”

The Foresight Analytics report says that the more wealthy a person is, the more concerned they are with protecting that wealth and mitigating drawdown risk. It’s an observation that’s reflected in Alceon’s Debt Income Fund that only holds senior secured loans (first mortgage) where the maximum net LVR is 65 per cent.

“This means the fund ranks highest in the capital stack and is the first to be repaid, providing investors with a significant buffer in the event of borrower default.”