Uncertainty provides opportunity for long-term private investments: BlackRock

Investors in private assets didn’t escape this year’s difficult markets, but they can use the volatility to take advantage of long-term trends such as clean energy and tech adoption, a report from BlackRock Alternatives says.

The investment environment remains “complex and uncertain,” the asset manager’s alternatives division said in a 2023 private markets outlook report, with many developed economies preparing for a recession.

“But we see short-term uncertainty as an opportunity to continue investing in long-term megatrends, such as the net-zero transition,” it said.

“We also see accelerated global technology adoption, growth in health care, and demographic shifts driven by changing lifestyles and preferences.”

In private equity, the report cited opportunities to invest in health care and technology at attractive multiples, while the energy crisis and the transition to a low-carbon economy have contributed to the need for investment in green technology infrastructure.

Private credit spreads and higher interest rates have increased potential returns, the report said, but also the risk of defaults, making underwriting standards and deal structures even more important.

As for real estate, investment has slowed and investors should expect more asset repricing in 2023, it said, creating opportunities for those who find the “regional and thematic sweet spots.”

Overall, lower entry valuations for private assets make them attractive with potentially greater risk-reward, the report said. However, there’s also wider return dispersion, which makes manager selection extremely important.

The report also noted that the role of private assets in portfolios is changing after the negative correlation between stocks and bonds collapsed this year.

“During the Great Moderation, the narrative for private markets focused on yield premiums in a low-rate world,” the report said. “But we believe the focus should now include both the active and additive nature of private markets, based on the strength of asset selection, resilience through economic cycles, and protections in the form of investment structuring.”

Staff

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