00:00 Speaker A
While AI trading is driving the market higher, investors are starting to wonder if valuations are inflated and portfolios are too concentrated. My next guest says there's more than one way to invest in AI, and I'll introduce you to some alternative assets to do so. I'm Aaron Mulvihill, Global Alternatives Strategist at JPMorgan Asset Management. Aaron, nice to meet you. So let's dig into this. You said, “Alternatives present a smart opportunity for AI.”
00:26 Speaker A
Let's talk about them. One is infrastructure. Why the infrastructure starts there and why such a relatively smart, clean and less crowded way to play.
00:46 Speaker B
Yes, it's good to be here, Josh. There are multiple ways to access AI themes, and alternative investing is certainly one of them. Well, this is what was written in the Alternative Investment Report that we released this year, which is the 8th year since we created this report. One of the hot topics is whether retail investors have access to alternative investments.
01:14 Speaker B
So there's now about $500 billion of alternative investments available as evergreen alternatives that are a little more accessible to investors. As it relates to infrastructure, one of the biggest challenges in AI right now is power, or the accessibility of power. This is a major challenge that limits the development of data centers. This is what all hyperscalers are focused on.
01:46 Speaker B
What private infrastructure funds do is operate the power generation and transmission infrastructure necessary for AI development. So we think this is an area with tremendous growth and a lot of potential for investors to have access to AI themes.
02:08 Speaker A
And why private infrastructure managers? Why are they in a better position than utilities?
02:18 Speaker B
Well, at the end of the day, it's generally a public vs. private debate. So a public company is, of course, very accessible in all its activities. They must be very open about their plans. Private infrastructure and private companies can generally move very quickly. Oh, and they don't have nearly as many regulatory burdens as public companies. Operating costs are lower for them. They don't need to IPO the company.
02:51 Speaker B
The capital they have access to is plentiful. So they're able to move very quickly and when it comes to AI, they're in a very good position to do business with AI companies that are hyperscalars that need power now, not 10 years from now, and we're not talking about long-term development projects, but they're operating a power infrastructure that's very helpful in achieving their AI goals right now.
03:22 Speaker A
And Aaron, another topic you mentioned here is private equity. It seems like everyone is expecting a pretty strong trading environment this year, so let me explain that.
03:32 Speaker B
Private equity is all about closing deals, and this year could be the biggest deal closing year in a decade. If you look at the factors that are in play now, um, we were talking about 2025. There were good factors in 2017 as well, but there were tariffs, stock market turmoil, a government shutdown, and many IPOs were delayed. this year,
04:02 Speaker B
Touchwood, without these challenges, we have a really good background. Financing costs are coming down. This is very useful for private equity and closing deals. We have a supportive regulatory and business environment, many private equity firms are preparing to sell, many IPOs are being discussed and proposed, and this year could potentially see the first trillion-dollar IPO.
04:27 Speaker B
If you think about what's happening within AI, it's private companies that are doing this development, and venture capital-backed companies that are building the AI models. All of these are privately run. Currently, only alternative investors can access them.
04:47 Speaker B
They may enter the public markets, but much of the value is created and enjoyed by private market investors, and public market investors will be at the tail end.
05:01 Speaker A
What about personal credit, Aaron? Are you considering that topic?
05:04 Speaker B
Therefore, private credit yields have declined. We are in a cycle of lower interest rates. Last year I had three cuts. Depending on how the job market develops, there could be two more rate cuts this year. So while private credit yields have declined, there is still a healthy premium compared to public markets. Private credit typically commands a premium of approximately 200 to 250 basis points compared to public market credit.
05:40 Speaker B
Huh, is there a risk? When you're talking about higher premiums and higher yields, there's certainly more risk, but there's always a commensurate relationship between risk. Therefore, it is important to choose private credit now. Um, but we feel that it's healthy for the premium to be maintained and justifies some of the challenges that may exist in the market right now.
06:14 Speaker A
Finally, Aaron, you've improved the way you look at real estate. Why? Why now?
06:21 Speaker B
We have improved our real estate outlook. It all depends on supply and demand. Oh, we're not building enough houses. We currently have challenges in the real estate sector in terms of the amount of real estate being developed. Um, commercial real estate prices are actually, in many ways, uh, lower than they were pre-coronavirus in many cases. We're still emerging from this work-from-home, hybrid work environment.
06:55 Speaker B
As a result, the office's reputation has also improved. The hospitality and logistics sectors are getting better ratings. So it's a really great time to get into a real estate environment where valuations are historically low, but, well, rents are very healthy and are generating healthy income for investors.
