DRY POWDER GROWS AS MANAGERS SEEK NEW OPPORTUNITIES
Posted on in Editorial by Josh
A tall tale sign of the health of the global economy is dry powder levels. In a general sense, dry powder refers to highly liquid securities, such as cash reserves. In the alternative investment industry, dry powder assets pertain to committed funds that have yet to be allocated to investments. Maintaining cash reserves gives organizations a buffer against unforeseen financial disasters. At the same time, companies shouldn’t keep too much money as dry powder because it reduces expansion and growth. The balance between dry powder and investments is unique to each firm, but on a global scale can indicate the mood of the economy.
As of 2016, global dry powder was recorded at a staggering $1.4 trillion, the highest in history. This record shattering amount alludes to a larger global trend. The risk-free rate of return has been at a constant low, meaning money sitting in a bank isn’t getting exciting returns. In fact, German banks are charging negative interest rates on large deposits. Individuals who are deciding where to put their retirement savings no longer know the value of the bank, but do know the value of real assets. So, investors are throwing their funds at alternative investments that guarantee more substantial growth.
There is now $4.2 trillion in AUM in the asset class, but fund managers are transitioning their investment strategies. Because of disappointing public market returns, it is increasingly more difficult for institutional investors to claim high returns. Huge pension fund managers and small private equity managers alike are searching for alpha in new and innovative ways to make up for low-yields.
The increased dry powder acts as leverage for industry leaders, who are dedicating extra resources to entrepreneurial efforts. Their pursuits in big data and cross-sector software develope new infrastructure in the industry. A key player is BlackRock’s Aladdin software, which uses data analytics and artificial intelligence to oversee nearly $14 trillion in assets. The breadth of research highlights new market correlations. Players in the industry are hopping on the bandwagon by using these data tools to target value accruing assets.
Analytic tools and increased capital have opened art assets to individual investors, and new technology has allowed art to develop into an important force in the alternative investment industry. Art will be a likely candidate for fund managers who are seeking new opportunities to invest their dry powder. To start investing in art assets, e-mail email@example.com