- Several mega forces will lead to higher-quality opportunities
emerging across infrastructure, private debt, private equity and
real estate in 2024
- Assets on track to reprice, creating attractive entry points
for new vintages across private asset classes
BlackRock today released its 2024 Private Markets Outlook, with
investment views on how private markets – spanning different
sectors, geographies, investment styles, and risk appetites – will
evolve in the year ahead. Several mega forces 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, despite significant headwinds in 2023.
“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.”
Infrastructure: Resilience and growth driven by the adoption
of low-carbon energy sources
As an asset class, infrastructure 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 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 trillion per year of capital investment in the
global energy system through 2050, up from around $2 trillion per
year at present, with low-carbon energy sources making up around
70% of the world's energy by 20501.
Private Debt: Dispersion, not disruption
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 management2.
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 trillion3 in AUM by year-end 2028.
Private Equity: Adjusting to a new era
Private equity is in a period of adjustment in the current era
of higher rates and market uncertainty. BlackRock maintains a
positive view on the asset class and the ability of the marketplace
to adapt, given its historical outperformance during times of
market volatility, new unique investment opportunities generated by
the mega force of artificial intelligence technology advancement,
and several signs that the deal landscape could be attractive for
buyers:
- Sellers are motivated as there has been little to no access to
the IPO market and low buyside sponsor demand over the last two
years4.
- Stability is returning to the debt markets, contributing to a
more favorable borrowing environment.
- An increase in corporate carve-out activity should generate
additional opportunities for private equity to acquire non-core
divisions with proven business models and untapped potential.
- 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
returns5.
- The need for realizations and maturing capital structures in a
deal-challenged environment are driving private equity owners to
evaluate minority sales and structured capital raises – presenting
attractive risk-return dynamics and a buyer-friendly market.
BlackRock is optimistic that deal activity will accelerate in
the near-term and produce attractive returns for private equity
buyers with access to capital.
Real Estate: Value in volatility
A window of opportunity is opening for real estate investors. In
today’s dislocated macroeconomic environment, investors can
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 (e.g.,
supermarkets, strip mall complexes) and service providers (e.g.,
childcare centers).
At the same time, the aging of the world’s Baby Boomers as a
“silver wave” will boost demand for destination retail and
hospitality properties6. 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. Not all opportunities in
this environment will be created equally.
About BlackRock Private Markets BlackRock’s private
markets platform serves investors seeking outperformance in
infrastructure, private debt, private equity, real estate, and
multi-alternatives solutions. We strive to bring our investors the
highest quality opportunities by drawing upon our global footprint,
superior execution capabilities, proprietary technology, and
position as a preferred partner. As of September 30, 2023,
BlackRock manages US$317 billion in liquid and illiquid alternative
investments and commitments on behalf of clients worldwide.
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_________________________________ 1 Source: BlackRock 2024
Private Markets Outlook, December 2023. 2 Source: BlackRock,
Preqin. As of each calendar year-end. 2023 is as of March 2023. 3
Source: BlackRock, Preqin. Historical (actual) data from Preqin, as
of each calendar year-end, through March 31, 2023 Forward
looking estimates may not come to pass 4 Source: Deallogic,
data as of October 31, 2023. 5 Source: LCD News and Bloomberg, data
as of October 27, 2023. 6 Source: Oxford Economics and BlackRock,
as of September 2023. There is no guarantee that any forecasts
made will come to pass.
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Media contact Christopher Beattie 646-231-8518
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