2. Trends in Direct Investment: A Historical Perspective:
2.3 The maturing of illiquid investment markets 2000-2007
During the dotcom crash in 2000, venture capital and listed equities collapsed, but some unlisted alternative sectors, such as private equity and certain types of hedge funds, performed relatively well, demonstrating that the right alternatives strategy could complement traditional investment strategies.
The period between 2003 and the financial crisis of 2007 marked something of a golden age for alternative assets and asset managers, as institutions looked for investment opportunities to help offset weak equity markets and low interest rates, and the availability of credit and leverage boosted asset markets.
The new enthusiasm for illiquid assets also helped the infrastructure equity market grow quickly at this time (Figure 6), catering to institutional investors’ needs for predictable cash flows combined with long-term capital appreciation. Similarly, interest in infrastructure debt has grown significantly, with funds focused on infrastructure debt raising money since 2006.13
Sovereign wealth funds emerged from 2000 onward as a large-scale investor group, charged with creating long-term capital appreciation.14 Unlike pension funds and insurers, they were largely unconstrained by short-term liabilities and soon became major players in the alternative and illiquid investment markets.