“Near-term uncertainty presents an opportunity for investors to achieve their long-term objectives by continuing to invest in durable global trends such as the transition to a low-carbon economy, ever-expanding technology adoption and emerging demographic shifts,” Edwin Conway, global head of BlackRock Alternatives said in a statement this week.

“More and more companies are turning to the private markets for their capital and financing needs, enlarging the field of potential investments,” he continued. “And history tells us that even through periods of turmoil private assets can perform well on an absolute and relative basis.” 

“While we acknowledge the challenges that may come, we’re nevertheless optimistic that a worldwide network of relationships, rigorous selection process and sophisticated risk analytics can deliver the best in private markets for clients, no matter the market cycle,” Conway said.

As more businesses stay private for longer, or don’t even float on the stock market at all, there is a need to capture returns from the private markets space. Because of their typically lower liquidity, they have tended to pay superior yields - attracting inflows at a time when yields on listed equities and government bonds were suppressed by a decade of ultra-low interest rates.

BlackRock Alternatives has published its annual outlook: 2023 Private Markets Outlook: A New Era for Investors. The report, authored by senior investors across private equity, credit, infrastructure, and real estate, provides BlackRock Alternatives’ perspectives on trends and expectations for private markets investing in the year ahead. 

According to the report, a new era of higher inflation, interest rates and volatility has wracked public markets, creating opportunities for upcoming vintages across private markets.

The role of private assets in a portfolio is becoming more important than ever, the report adds, as they are uniquely poised to take advantage of several significant global trends such as the net-zero transition, expanding technology adoption and demographic shifts.

Private credit continues to expand as public financing retreats and more companies seek capital, it states. 

Infrastructure
Infrastructure should benefit from continued investment in sustainable energy and energy security. It can also play a role as a non-correlated inflation hedge, the report adds.

In the United States, recent policy shifts are improving infrastructure fundamentals, the report said. 

The Inflation Reduction Act and other new US legislation are expected to boost investment for new technologies such as hydrogen and carbon capture, add debt capital for transport sectors, promote public-private partnerships and speed approvals for large-scale infrastructure projects such as transmission-grid upgrades.

In Europe, the report says that there is intensifying demand for greener and more resilient infrastructure. The entire region is pushing urgently to decarbonize power production, electrify motor vehicles and establish greater energy independence by transitioning away from imported fossil fuels and into renewable generation and power storage.

Europe and Asia
From an infrastructure standpoint, Europe is at an inflection point when it comes to reliance on digital communications for commerce and work, it adds. But it’s also at the heart of a possible global slowdown in 2023, which could test many of these trends, or be an opportunity to incubate new technologies and business models.

In the Asia-Pacific region, the outlook remains relatively firm given stronger growth and lagging infrastructure supply, the report notes. The renewables rollout is still accelerating, led by the more mature markets in Australia, Japan, South Korea and Taiwan.

Energy exporters in Southeast Asia and Australia are being bolstered by high energy prices, providing an opportunity to add greener capacity ahead. 

The transport sector is showing a staggered rebound, reflecting the uneven pace of border reopenings across the region.

Private equity
In private equity, the firm sees lower valuations, increased buyout, carve out and M&A activity, and more quality portfolios for sale in the secondary markets.

The best vintages typically follow recessions, the report says, and PE outperforms by a greater alpha during periods of distress.

Direct allocations, which allow for focused deal selection and portfolio building, are well situated to benefit from times like these, it says.

Real estate   
Meanwhile, real estate values are resetting in response to changing tenant demand and higher financing costs, leading to disparate returns among regions, sectors and property types, the report continues.

The shift away from the office is a much more powerful trend in the US than other regions, especially Asia, it adds. 

In the Asia-Pacific region, the work-from-home trend seems to be passing more quickly, as office workers’ return is driven by local business culture and smaller home sizes, the report states.

But across the globe, the firm expects a major churn in office tenants, with a focus on prime properties that can offer more amenities to entice white-collar workers back.

The need for multifamily housing in the US and Europe is already high, the report adds, and may be pushed even higher as rising interest rates and persistently elevated home prices force more would-be homebuyers to rent.