Schroders’ chief investment officer for private assets, Nils Rode, urged investors to align their private market investment strategies with long-term trends like sustainability or the rise of India to buttress against the current downturn in private markets.
Having endured a golden era since the global financial crisis hit as more money was funnelled into them amid low interest rates, private market valuations tumbled last year as interest rates rose, albeit not to the same extent as public markets.
During the first quarter of this year, fundraising in some segments of private markets completely dried up. According to Preqin statistics cited by Schroders, for example, infrastructure fundraising fell almost by 90% year on year.
Fundraising figures are a useful proxy for investment activity and to some extent valuations, Schroders noted.
Still, Rode reckons that there remain pockets of opportunities in private markets.
“In the current slowdown, we recommend that investors direct their new investments towards assets that align with long-term trends and exhibit low correlation with traditional investment strategies,” he wrote.
Examples of long-term structural trends that investors should seek to align themselves with include sustainability and impact-aligned investments, renewable energy, generative artificial intelligence and investments in India, Schroders said.
Overall, Rode also sees opportunities in private credit due to rising interest rates, widening spreads and more creditor-friendly deal terms.
His views come as everyone from sovereign wealth funds to venture capital firms have been gearing up their exposure to private credit.
Although, there are questions about how sustainable this is as private credit is not immune to inflationary pressures or the rising risk of defaults.
Meanwhile, Rode also urged investors to adopt a patient approach when it comes to real estate, echoing many commentators who have noted that valuations for non-listed real estate have not yet come down in line with their listed equivalents.
He said the best opportunities currently could be found in markets that have experienced the fastest repricing such as the Nordics and the UK.
