2024 Private Markets Outlook

Embracing a changing world

Despite continuing uncertainty, we are embracing the structural changes reshaping our world. And private markets are uniquely positioned to benefit from these mega forces: digital disruption and AI, the low-carbon transition, demographic divergence, the future of finance and geopolitical fragmentation. Whether it’s infrastructure’s importance to the transition or the role of real estate in helping societies adapt to demographic change, private capital will be essential.

We believe private markets are sometimes viewed as a single investment option, but as this Outlook shows, they span different sectors, geographies, investment styles, and risk appetites. There is no one type of “private asset” and the key to a successful portfolio is recognizing the differences and choosing the right option for an investor’s needs.

Key takeaways

• While the markets remain volatile, the ongoing shifts to the broader economy and investing landscape have poised private markets for growth.
• The mega forces reshaping our world drive many of the opportunities we see across different private asset classes.
• Continued volatility and persistent inflation has highlighted infrastructure’s resilient cashflows, while the essential nature of many infrastructure assets mean it is less tied to economic cycles than other asset classes.
• While private debt continues to grow, the higher cost of capital will drive dispersion. A nuanced and defensive approach will be critical in 2024.
• In private equity, high interest rates are driving cash-strapped companies to seek more equity financing, while low transaction volumes are creating attractive situations for buyers in the secondary market.
• While real estate values are resetting, there are attractive opportunities in several property types, including industrial and logistics, necessity retail and some types of residential.

As an asset class, infrastructure is having a moment. Stubbornly high inflation, along with the recent volatility in stock and bond markets, has revealed the inherent strengths of many infrastructure investments.

Long-term structural trends support infrastructure investment in the years and decades ahead. The world is in transition, requiring a reconfigured energy system and investment across all sectors to decarbonize. Digital infrastructure is expanding around the globe, increasing demand for fiber broadband, cell towers and data centers.

Supply chains are also being decoupled and rewired as geopolitical fragmentation accelerates ongoing trends toward onshoring, nearshoring and friend-shoring. This is driving fresh investment in key logistics infrastructure such as railways and ports.

Steady across market cycles

Infrastructure assets have shown resilient income and capital appreciation

Private debt continues to grow and cement its status as a sizable and scalable asset class for a wide range of long-term investors. Totaling more than US$1.6 trillion globally, as of March 2023¹, it represents roughly 12% of the US$13 trillion alternative investment universe.

The addressable market in private debt has expanded significantly over the past decade, as banks and public lenders have moved away from the middle market. As a result, direct lenders have funded larger deals, and investors now increasingly turn to private debt to access the income opportunities presented by middle-market companies.

In 2024, the higher cost of capital is likely to impact sectors and firms differently, due to their varying degrees of pricing power, business strength, and capital-structure management. This backdrop will be an important driver of dispersion, not disruption, across asset classes, sectors and issuers.

An increasingly essential asset

Private debt now represents 12% of alternative assets under management (unrealized value and dry powder)

Private equity is in a period of adjustment amid the new era of higher rates and market uncertainty. We remain positive, however, on the asset class given its historical outperformance during times of market volatility, and signs that near-term opportunities could be attractive for buyers with access to capital. This new era is characterized by some key themes.

The window of opportunity is opening up for real estate investors.

Globally, valuations are still adjusting down from their 2022 peaks, as a result of higher inflation, interest rates and volatility. This dislocated environment allows investors to purchase high-quality assets at attractive prices, and often below replacement cost. And bid-ask spreads are starting to narrow as investors command higher risk premiums across the board.

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% year-over-year¹, 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.

Dispersion has defined the asset class since mid-2022, when interest rates started to affect the private markets, and will likely be a major investment theme in 2024.