Allianz Global Investors has identified three investment themes in private markets that should offer investors compelling opportunities in 2023.
These focus on private credit, co-investments and GP-led secondaries, as well as infrastructure as the most appealing asset class.
Emmanuel Deblanc, global head of private markets at AllianzGI, said: “Private markets have developed into a global, highly diversified and heterogenous universe where – we believe – some sub-sectors offer investors relative and absolute value in a complex macroeconomic backdrop.”
The past decade of unrealistically low real and nominal interest rates, which led investors to push up valuations in public markets and to embrace the illiquidity premium offered in some private markets, means that amid the current economic uncertainty there is a repricing of capital and of real assets that has the potential to spark a raft of opportunities in private markets.
Deblanc points to three areas of focus for private credit: European mic-cap lending, European credit markets, and trade finance.
He said: ”2023 could be another year for European credit markets in which banks further withdraw from lending in the deeply noninvestment grade space driven by banks’ own increasing cost of capital, and opportunities for banks to earn easier money in safer segments in a higher rate environment.
”Higher returns in the lower rated segment of the credit market provide more cushion to absorb the losses which could arise in a recession”
He sees trade finance as a short-term, semi-liquid asset class with limited credit and rate risk, which can therefore ”be used as a tool to maintain portfolio returns while waiting for longer-dated credit markets to reset”.
While Deblanc predicts a tougher market for fundraising and portfolio adjustments by investors, he expects GPs to stretch their investment periods through co-investments and GP-led secondaries.
He said: ”Secondaries have plenty to offer: faster deployment at a time when investors can pick up a robust complexity premium on top of historically attractive entry points; liquidity for sellers; and objective pricing levels for all stakeholders.”
Deblanc added that the scope to capture value will likely be optimal in those segments which have grown fastest in the last few years, such as infrastructure equity and credit.
The team at AllianzGI believe that infrastructure will be a particularly attractive sector this year.
According to Deblanc: ”Many factors underpin our conviction that this is a compelling sector to take more exposure to. This is firstly underpinned by the huge capital needs in the energy sector both for energy transition and security which previously may have been looked at over several decades – we now count in years.
”The infrastructure sector has kept on providing waves of opportunities, but it is the sheer scale of this latest wave which makes it unique. Private markets have had a stellar decade of growth. The dislocation seen in public markets in 2022 and the capital demand in the energy sector should bring investors another window to enter some segments of private markets on attractive terms. Experience and understanding of these markets will matter more than ever while uncertainty remains elevated.”
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