With so much stimulus on top of the billions of euros still in the market from the Global Financial Crisis (GFC) and sovereign debt crisis, how are alternative assets positioned for the future, where are the likely winners and losers?
We have a new acronym to add to the financial lexicon, the "GHC". What was initially a China-centric issue with supply chain implications, now looks disastrous as developed markets reach levels of unemployment not seen in decades. So where does that leave us now?
Looking back through history one is reminded of the deep recessions following the 1970s oil crisis, which saw a 400% increase in the price of oil in a little over six months.
Energy security became paramount and the UK Government responded by implementing a nationwide three-day week, impacting industry and society root and branch.
As night followed day, the fall in economic activity led to increasing unemployment. It's easy to start seeing the parallels with our circumstances and the global lockdown initiatives.
Central bank toolkits
A lot has changed since then. The policy toolkit, in particular has evolved and central bankers and lawmakers are far more in tune with the needs of industry, society and the nation as a whole, and they are not shy.
We are counting the stimulus this time around by the trillion, rather than billion, as more than $5trn in fiscal and monetary support has come from the US, UK and Europe over the past six weeks alone.
Nor will it end there. Over the past eight years, the European Central Bank (ECB) has deployed the best part of €2.75trn in response to the European sovereign debt crisis which followed the Global Financial Crisis.
Compare that then to the €750bn the ECB is hoping to inject over the next eight months alone.
Who are the winners?
The major winners here are without a doubt going to be alternative assets. It might not seem immediately obvious at this point, but let's pause for a moment, and examine a few important statistics.
First, let us consider the impact of 34% of the FTSE 100 suspending their dividends on traditional equity income.
Second, 90% of the Bloomberg Barclays Euro IG bond index yields less than 2.5% which has connotations for traditional fixed income.
Third, the $5trn in stimulus is being injected into the markets. Together these three key figures create a pretty compelling argument in favour of traditional alternative assets.
There are two important components when looking more closely at the sector: infrastructure and real estate. Both have very simple operational models: they own assets, and collect cash flows.
The majority of these types of assets operate in sectors which are benefiting from the ongoing structural or political changes and typically have high quality counterparties ranging from S&P 500 or FTSE 100 companies to central governments.
These assets access such trends as decarbonisation, ageing populations or the digitisation of services through the investment in GP surgeries, nurseries and care homes, solar and wind parks, to data centres and distribution warehouses.
In fact, many of these sub-sectors have seen demand spike due to this global health crisis as Covid-19 has accelerated the decay of the high street and forced a change in our consumption behaviours almost overnight.
Take a moment to think of what our days currently involve; Zoom or Skype calls with work colleagues (data centres), and online shopping for the family (distribution centres).
The medium-term view
Although the current hot topic of debate is whether the eventual shape of the recovery will take the form of a V, W, L or U, it is important to take a step back and understand that a recession is likely to last for at least a year (a five-quarter recession would be the 'mode').
However, structural factors are like a force of nature, and combined with the stimulus injected over the past six weeks and to come, the alternative asset class is set up for a fantastic medium-term rally in performance.
Pietro Nicholls is the lead portfolio manager of the VT RM Alternative Income fund and co-manager of a listed investment trust at RM Funds