BlackRock says these investment opportunities reflect evolution in private markets
Canadian investors should see major investment opportunities in private markets in 2024 according to a new outlook from BlackRock.
The asset manager says that, despite headwinds, private markets should benefit from several ‘mega forces’ in the year ahead including the low-carbon transition, digital disruption and AI, demographic divergence, the future of finance, and geopolitical fragmentation.
Several areas of private market exposure are set for exponential growth and Edwin Conway, the firm’s global head of Equity Private Markets says investors can capture the substantial opportunities created by the fast-evolving landscape, if they have the right strategy.
“We expect private markets will remain an attractive option for investors to deploy capital in 2024 and beyond,” he said. “While the macroeconomic volatility we saw this past year resulted in more capital left on the sidelines, we expect new higher-quality opportunities with favorable deal structures to emerge for investors across asset classes in the year ahead.”
Infrastructure
Infrastructure is one of the private market assets that is expected to gain in 2024 thanks for one of the mega forces in play, the need to decarbonize the global economy including reconfiguration of the energy system.
Energy storage, electric vehicles, and alternative aircraft and marine fuels are all areas ripe for growth and returns for investors.
The BlackRock Investment Institute Transition Scenario predicts that the adoption of low-carbon energy sources could result in an average of USD $4 trillion per year of capital investment in the global energy system through 2050, up from around $2 trillion per year at present, with low-carbon energy sources making up around 70% of the world's energy by 2050.
Private debt
Another growth area that is expected to provide significant investment opportunities is private debt.
The mega force of structural shifts in public financing markets have enabled private debt to continue to grow including direct financing but also other options as the cost of capital weighs on sectors differently.
With banks focusing on ever-larger companies, the outlook sees a middle-market gap that private market lenders can step into.
BlackRock estimates that the global private debt market will reach $3.5 trillion3 in AUM by year-end 2028.
Private equity
Higher rates and market uncertainty has created challenges for private equity, but BlackRock expects a positive road ahead as the mega force of AI, historic outperformance during volatility, and a potentially more attractive deal landscape converge to provide strong investment opportunities.
The need for realizations and maturing capital structures in a deal-challenged environment are driving private equity owners to evaluate minority sales and structured capital raises – presenting attractive risk-return dynamics and a buyer-friendly market.
Real estate
Shifting global demographics – with Boomers and Millennials entering new life stages - are another mega force that BlackRock sees in the coming year, with low valuations providing attractive opportunities for real estate investors.
For Millennials, the focus is on growing their families and that will require affordable housing, retail such as supermarkets and strip malls, and services such as childcare centres.
Meanwhile, Boomers will demand destination retail space, hospitality, and healthcare facilities.
BlackRock says that investors will need to consider the mix of real estate likely to be required in their neighbourhood as not all opportunities will be created equally.
