While the White House’s economic nostrums are rattling the markets, the long-term outlook for commercial and investment relations between the two countries is positive, with a recent summit in the US further cementing ties.
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The ‘window of opportunity’ is opening in private markets: BlackRock
Private equity is in a “period of adjustment” with rates set to stay higher but BlackRock is positive on the asset class owing to its historical outperformance during periods of market volatility and signs that deal activity is beginning to accelerate once again. And the rise of artificial intelligence is a “mega force” that will expand the opportunity set.
“AI continues to be an opportunity for investment in disruptor companies, as traditional venture and growth investing would suggest,” BlackRock writes in its 2024 private markets outlook. “But generative AI also has the potential to shift the balance of power back to incumbents.
“We have already seen it in software, where AI investment by industry leaders has left many startups with steeper catch-up curves. AI applications are also emerging in our investments in healthcare, business services, and consumer, particularly as we see more consumer engagement with generative AI products.”
But in infrastructure, the cheap financing that has bolstered returns has vanished, and managers will now have to pull other levers – and plenty of them – to create value. They also need to be more selective, and BlackRock expects “greater dispersion in manager returns ahead”.
“The macro backdrop has also made for a slower year of fundraising. In the secondaries market, we’re seeing discounts for the first time. For those with capital to spend, there is an exciting window of opportunity to buy quality assets at lower entry points with attractive structures.”
Meanwhile, the “window of opportunity” is opening up for real estate investors, with a dislocated environment allowing them to purchase high-quality assets at attractive prices, and often below replacement cost.
“Historically, the real estate asset class tends to perform well after periods of dislocation. And we believe this environment of repricing amid steady market fundamentals represents a great opportunity. There are, however, strong headwinds. Transaction volume globally is down 57 per cent year-over-year, largely due to the higher cost of capital.
In the near term, limited financing availability will likely contribute to an environment that’s very different from the low-rate world that followed the global financial crisis.”
But it’s private debt that now reigns supreme, with assets soaring through 2023 as big investors around the world searched for yield., and it shows no signs of slowing down in the year ahead.
Middle-market firms are increasingly turning to the private debt markets as a viable path for funding, driven by a range of factors including tighter bank lending standards and structural shifts in the public markets to serve larger borrowers,” the report says.
“As the private debt market continues to grow in size, its capability to compete directly with the public debt financing markets will likely expand. That wider landscape of available deals will allow the private debt market to expand its addressable market of borrowers, further supporting the growth of the asset class.”
