Private capital avenues for guiding investors through turbulent economic conditions
In the current market landscape, private markets are emerging as a valuable source of resilience and sustainable returns for investors. These avenues for income and growth are less affected by market volatility, making them an attractive option for those seeking stability.
One area within private markets that is gaining traction is real estate. Its inherent operational nature can be enhanced by adopting a hospitality-led approach, which can foster tenants' success and enhance income through services.
Private equity is almost on par with global equities as the preferred asset class for investors seeking return opportunities. Small and mid-sized buyouts, continuation fund investments, and early-stage venture capital focused on key growth sectors are accessing these trends in private equity.
Diversification is crucial in a market with heightened idiosyncratic risk related to announcements and policy changes. Investors are showing increased interest in actively managed strategies, as indicated by the latest Global Investor Insights Survey.
Specialty finance, asset-based lending, and real assets debt can offer stable, high income, or diversifying cashflows, often capitalizing on market inefficiencies. In private equity, smaller, innovation-rich, services oriented, and domestically focused companies are considered less exposed to global trade disruptions and geopolitical tensions.
Private markets have historically offered protection against public market volatility and have often thrived during periods of uncertainty. The largest private-market-based investors currently active in Europe include major private equity firms such as KKR, Blackstone, and Permira, notably involved in significant transactions like the takeover and planned break-up of Adevinta. The DACH region shows relative stability with continued interest in technology, healthcare, and industrial sectors. Additionally, venture capital investors such as Almaz Capital and UVC Partners are leading substantial financing rounds for tech startups in Germany.
Insurance-linked securities (ILS) are another attractive option due to their combination of strong returns and low correlation with traditional markets.
The broad universe of private debt and credit alternatives is the top-ranked option for investors seeking to generate income over the next 12 months. Across private debt and credit alternatives, specialized strategies are key, with increasing volatility offering opportunities across the debt spectrum.
Private markets currently benefit from cyclical tailwinds, resulting in generally attractive valuations and yields. Renewable-related technologies, such as hydrogen, heat pumps, batteries, and electric vehicle charging, will play a crucial role in facilitating the decarbonisation of hard-to-abate sectors.
Focus should be placed on strategies with downside protection, access to companies and assets insulated from global trade risks, and/or diversification through reduced correlation with listed markets and distinct risk exposures. In the current market environment, there will be some private market strategies that exhibit notably better risk/return profiles than others.
Despite recent pushback, renewable energy infrastructure remains compelling due to its strong inflation correlation and secure income traits, with the most attractive opportunities now in Asia and Europe. Private equity is ranked number one overall for return opportunities among institutional investors, with local champions with operational and transformative growth potential, and multi-polar innovation being key trends in identifying the best opportunities in private equity.
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