Capital alternative

An exponential growth in the Caribbean’s alternative investments market is creating exciting news.

For years, those looking to invest in Caribbean markets had few other opportunities to access capital outside of traditional banking sources. Good news then that the region is experiencing a boon in alternative investments including private equity, venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. The region’s alternative investment space currently has around USD 600 million in capital under management – a figure set to grow.

A regional alternative investment expert said, “This is an exciting time for the region. The Caribbean alternatives market could scale to USD 1 billion over the next five years. Private debt which is investing in customised instruments is one of the fastest growing segments. Private equity is also growing fast.”

“This is an exciting time for the region. The Caribbean alternatives market could scale to USD 1 billion over the next five years.”

Alternative investment expert, the Caribbean

Opportunities to access capital via non-traditional routes are being driven by private debt, private equity and real estate. All three are growing quickly because the regional market has diversified and thus the number of investment shops has grown exponentially. In a sign of the health of the market, Sygnus – a speciality credit investment company – announced last month that it had surpassed USD 100 million in assets, two years ahead of target.  

Real estate in particular has been driven by developments in the Jamaican market where the government changed the tax structure for real estate assets in 2019 by reducing transfer taxes resulting in a subsequent boom. Barbados-based Eppley Caribbean Property Fund now has 49% of its investment portfolio in Jamaican real estate. 

The regional alternative investment expert said, “Caribbean markets need private equity and the private sector to take the lead on many transactions. The region will also need much of this capital to partner with government in public-private partnerships. You need a lot of private credit and private equity capital that’s going to go in and take the first set of risks.”

“Caribbean markets need private equity […] the region will also need much of this capital to partner with government in public-private partnerships.”

Alternative investment expert, the Caribbean

The prospect of attracting a more diversified portfolio of investors via non-traditional routes has given impetus to traditional banks to launch alternative investment platforms. In 2020, Jamaica’s National Commercial Bank launched Stratus Alternative Funds (“Stratus”) to provide investors with a broad range of non-traditional high-yielding investment solutions. Stratus has specialised in major infrastructure developments including a 40-year bond for Jamaica’s National Water Commission and the TransJamaican Highway initial public offering.   

During the pandemic banks understandably became more conservative in their lending habits providing opportunities for alternative assets to blossom. Many businesses who saw opportunities and wanted to grow by expansion needed flexible financing through acquisitions facilitated by alternative investment routes.   

For those considering alternative investments, investors would do well to look at exposure – what sectors are private equity circles exposed to? This helps to get a better sense of which sectors are likely to go up or down with a recession, high inflationary environment, or if interest rates are going to hold.  

Whichever vehicle is used to deploy capital, reputation and track record matter; the investment expert explained, “The number one risk is ensuring that you deploy capital with an investment manager with a good track record. That’s number one, number two and number three.” 

The future of the region’s alternative investment market looks bright even if growth could be slower compared to more developed regions. The investment expert explained, “If in the Caribbean as a percentage of GDP, alternative investment does not get up to 7% of GDP like it is in developed economies, it’s only going to be 1 or 1.5 or 2% of GDP. They’re moving from less than 0.1% of GDP to even 0.5% of GDP over the next five years – that’s still a big step.” 

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