A variety of “mega forces” including the low-carbon transition, digital disruption and artificial intelligence (AI), demographic divergence, the future of finance and geopolitical fragmentation, are likely to provide significant investment opportunities in the coming year, Blackrock’s 2024 Private Markets Outlook predicts.
“Private markets are evolving rapidly and presenting substantial opportunities that can be captured with the right strategy.” said Edwin Conway, global head of equity private markets, Blackrock, in a statement.
Blackrock highlighted several sectors, including infrastructure, private debt, private equity,
As the backbone of the economy, infrastructure offers steady cashflows with long-term, inflation-linked contracts that can span decades, the asset manager said.
In addition, the need to reconfigure the global energy system to decarbonise the economy is a force that presents considerable long-term private markets investment opportunities in infrastructure development, particularly around energy storage, the electrification of transport, and alternative fuels for aviation and marine.
Blackrock’s Investment Institute transition scenario predicts that the adoption of low-carbon energy sources could result in an average of $4trn per year of capital investment through 2050, with low-carbon energy sources making up around 70% of the world’s energy by 20501.
Private markets opportunities
Meanwhile, the structural shifts in the public financing markets have enabled private debt to continue to grow, cementing its status as an established asset class suitable for a wide range of long-term investors, according to Blackrock, manages $317bn in alternative investments and commitments, as at 30 September 2023.
Borrowers are increasingly looking for flexible capital with many running a “dual track” process, using private and public funding sources simultaneously. Blackrock estimates that the global private debt market will reach $3.5trn in AUM by year-end 2028.
Blackrock is also positive on private equity, believing that the asset class can adapt, given its historical outperformance during times of market volatility. It also offers investment opportunities generated by the evolution artificial intelligence technology, and several signs that the deal landscape could be attractive for buyers:
For example, it notes that there has been little access to the IPO market and low buyside sponsor demand over the last two years, an increase in corporate carve-out activity should prompt private equity to buy non-core divisions, and that volatility in the public equity markets and the higher rate environment will continue to put pressure on valuations, forcing buyers to price deals more conservatively to preserve returns.
Finally, Blackrock sees value from volatility in the real estate market. “In today’s dislocated macroeconomic environment, investors can purchase high-quality assets at attractive prices – often below replacement cost,” it said.
In addition, shifting global demographics – millennials building families and baby boomers moving to “hospitality destinations” will likely drive dispersion in real estate performance.
