John Harrison, executive director of the Alternative and Direct Investment Securities Association (ADISA), discusses the current economic environment relating to the COVID-19 pandemic and its impact on the alternative investment space.
How has COVID-19 impacted the alternative investments space and how has ADISA adapted to these changes?
Much like the publicly traded sector, the alternative investment space has responded during this uncertain time with the goals of protecting investor capital and fortifying balance sheets. In some cases, this has led to standard but difficult defensive measures, like reducing distribution payments, suspending share repurchase programs, or drawing down credit. Again, this is not unique to the alternative investments space; publicly traded companies are taking similar measures to strengthen balance sheets and protect investor capital for the long-term. These are prudent measures that are necessary during these unprecedented times.
As the host of the largest events in the alternatives investments space, COVID-19 has certainly impacted ADISA, including the cancellation of our Spring Conference and Alternative Investments Research & Due Diligence Forum this summer in New York, but we remain dedicated to our mission to provide education and advocacy for all of our members.
Throughout this time, we are offering our members access to the ADISA Spring 2020 Webinar Series and our upcoming Summer 2020 Webinar Series. The webinars highlight the business effects and adjustments needed to rebound more quickly from the consequences of the current pandemic. Additionally, ADISA is expanding on the contents of our website’s research library and launching an expanded new website this summer.
We’ve seen many programs in the space respond to the pandemic with distribution cuts and suspensions, restrictions on or cancellations of share repurchase programs and DRIP. These programs are generally attractive to investors as income investments where the investors sacrifice liquidity for significant distributions. Doesn’t the response to the pandemic undercut that fundamental sales proposition?
Fundamentally, the first responsibility of all investment managers is to protect investor capital. And while it is true that, generally, alternative investments are attractive to investors because of their ability to generate higher yields that are not correlated to equity markets, it is also true that the COVID-19 pandemic is an unprecedented event which has had a sudden and dramatic impact on society as a whole.
As we navigate through these uncharted waters, all good stewards of investment capital are taking aggressive action to strengthen balance sheets and protect investors in the long term, which can come with short-term costs to the investor. In the long run, however, we believe these actions will help sponsors emerge from this storm in as strong a financial position as possible for investors.
Do you believe it is a good time to invest in alts? If so, why?
Any time can be a good time to invest, depending on the goals. Section 1031 exchanges may benefit certain investors seeking to defer capital gains taxes, especially with the current extended deadlines.
In real estate, investors may have opportunities for better pricing than before. Different alternative investments provide different benefits to different types of investors. As always, an investor should perform due diligence and consult with a qualified financial advisor to determine the best course.
What are you seeing in terms of investor behavior?
As often happens during a sudden economic downturn, some investors allow their emotions to guide them, which can lead to knee-jerk decisions. The research would indicate that crises beget more conservative behaviors – meaning, for some, a flee from volatility. But prudent investors recognize that these downturns are temporary. These individuals hold on to their investments, while still finding other long-term opportunities.
One advantage of alternative investments is that they are not correlated to equity markets and help to mitigate volatility mentioned above. As they’re generally more illiquid, this also helps to protect investors from panic-driven responses and gives sponsors the opportunity to ride out this storm. ADISA has an upcoming webinar on this very topic on May 27th, featuring Dr. Michael Seiler, a national leader in real estate research, titled “Investor Behavior, Real Estate, and the Pandemic.”
John Harrison has served as the executive director of ADISA since 2012. He has been in association management for more than 25 years and served in industry, education, and health associations both in the US, Europe, and the Middle East. Before taking the helm at ADISA, he was vice president of global planning and the foundation executive director at TAPPI, the paper industry’s association, where he worked for 14 years. He was also with the American Cancer Society, the international YMCA, and the American Academy of Religion. Harrison has authored dozens of publications in the association management field and served on a management team nominated for the Nobel Peace Prize in the early 1990’s and was commissioned in the US Air Force out of college. He was a cum laude graduate in biology and psychology from the University of Georgia and earned an MBA from Georgia State University.