Several megatrends including the low-carbon transition, digital disruption and AI, demographic divergence, the future of finance and geopolitical fragmentation, are expected to offer major investment opportunities in the coming year, according to new research from BlackRock.
The firm's private markets outlook forecasts continued growth for a range of strategies, with assets on track to reprice, creating attractive entry points for new vintages across private asset classes.
'Private markets are evolving rapidly and presenting substantial opportunities that can be captured with the right strategy. We expect private markets will remain an attractive option for investors to deploy capital in 2024 and beyond,' said Edwin Conway, global head of equity private markets, BlackRock.
'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,' Conway added.
Real estate opportunities
The report suggests that a window of opportunity is opening for real estate investors, with dislocations arising from macroeconomic forces allowing investors to purchase high-quality assets at attractive prices – often below replacement cost.
In addition, BlackRock sees a mega force, shifting global demographics, as driving dispersion in real estate performance.
Two giant generational cohorts – the Baby Boomers and Millennials – are moving to new phases of life over the next several years, which will affect real estate trends. Millennials are growing their families, resulting in an increased demand for affordable housing stock and related necessity retail as well as service providers including childcare facilities.
At the same time, the aging of the world’s Baby Boomers as a 'silver wave' will boost demand for destination retail and hospitality properties.
And as they age, these Baby Boomers will also increase the global need for medical office space. To harness this mega force successfully, investors need an acute understanding of the particular social, economic, and cultural trends in specific regions, countries, and micro-locations.
Infrastructure outlook
According to the report, infrastructure, as an asset class, is having a 'moment'. As the backbone of the economy, infrastructure offers steady cashflows with long-term, inflation-linked contracts that can span decades – a significant advantage in a volatile environment, the report states.
The need to reconfigure the global energy system to decarbonize the economy is one driving mega 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.
The BlackRock Investment Institute Transition Scenario predicts that the adoption of low-carbon energy sources could result in an average of USD $4 trn (€3.7 trn) per year of capital investment in the global energy system through 2050, up from around $2 trn per year at present, with low-carbon energy sources making up around 70% of the world's energy by 2050.
Private debt forecast
The structural shifts in the public financing markets – another mega force – 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.
While direct lending is the largest private debt strategy type, the 'mix shift' of private debt fundraising varies from year to year, and 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, the report suggests.
As the private credit market evolves, it is leading to a dispersion of sources from which companies can raise capital. Borrowers are increasingly looking for flexible capital or customized funding solutions with many running a “dual track” process, using private and public funding sources simultaneously.
The banking industry meanwhile is serving ever-larger borrowers, leaving a hole in the middle-market for private market lenders to step into. BlackRock estimates that the global private debt market will reach $3.5 trn in AUM by year-end 2028.
