Featuring latest research on Private Credit (LGT, Principal AM); PE (Arcapita, Adams Street, TPG); Alts as an asset class (JPM, BlackRock, KKR); Real estate, Infra, Energy (BCG, Nuveen, M&G)
Hi, welcome to the new edition of The Valt Journal. In every issue, we cover the best and the latest insights into the global private markets. The Valt Journal is a repository of time sensitive and timeless research, delivered to your inbox every 2 weeks, so you don’t have to look anywhere else!
Check out TVJ Spotlights 🔦 including 1) Guide to Alternatives 4Q 2024 (by JP Morgan); 2) GCC private equity: Where to next? (by Arcapita); 3) Optimizing private credit investment – benefits of a multi-strategy approach (by LGT Capital)
Quickly scan the list of all reports in this edition here!
Numbers this edition Links: 46 Authors: 34
PRIVATE MARKETS AND ALTERNATIVE ASSETS
TVJ Spotlight 🔦
📝Guide to Alternatives 4Q 2024 JP Morgan This guide outlines opportunities across private equity, infrastructure, real estate, and private credit, highlighting their resilience and diversification potential in volatile markets. It emphasizes strategic asset allocation, the importance of private markets for long-term growth, and the evolving dynamics of alternative investments in response to macroeconomic changes.
📝 2025 Global Outlook: Building the transformation BlackRock BlackRock emphasizes the impact of mega forces like AI and the low-carbon transition, reshaping economies beyond traditional business cycles. Their three themes focus on financing the future through capital markets, rethinking investing with more thematic and tactical approaches, and staying pro-risk with a stronger focus private markets & infra.
📝Global wealth investment playbook 4Q 2024 KKR Elevated inflation volatility is increasing stock-bond correlations, pushing investors towards diversifying into real assets like infra and real estate for inflation-linked cash flows. PE continues to offer the highest returns, with a focus on value creation, secular trends, and resilient sectors like securitization, workforce productivity, and high-end consumer markets.
📝Private Markets Outlook 2025: Building value in a 'brave new world' Partners Group Private equity and credit stand to benefit from easing interest rates, while infrastructure and real estate require strategic navigation of geopolitical and interest rate challenges. Emerging asset classes like royalties offer diversification and inflation-resistant growth, making them valuable additions to portfolios.
✏️ The future of private wealth in alternatives Permira Private wealth investors are increasingly drawn to private markets due to their high returns, diversification, and high-growth potential, driven by generational wealth transfer and innovative structures. Individual investors held ~50% of global wealth in 2022 ($140-150T) with institutional investors holding ($135-145T). However, individuals account for ~$4T in alternative AUM with average allocations of 3-5% against a typical target allocation of 20%+.
✏️ How might policy changes impact alternative investments? JP Morgan Key opportunities, amid high-for-longer rate environment, include increased demand for private infrastructure and benefits for non-bank lenders, while risks include higher financing costs and volatility affecting real estate and private credit. Investors should stay alert to policy shifts while leveraging alternatives for alpha, income, and diversification.
✏️ The quiet revolution in private markets Morgan Stanley Semi-liquid funds are revolutionizing private markets by offering greater accessibility, liquidity, and operational efficiency, making alternatives investing viable for wealth managers and individual investors. These structures, especially suited for private credit, balance liquidity needs with the advantages of private markets exposure, democratizing access and meeting the growing demand for innovative investment vehicles.
📝 GCC private equity: Where to next? Arcapita The Gulf PE ecosystem has grown significantly, with AUM increasing from $1B in 2008 to $12-15B in 2024, driven by robust economic growth, regulatory reforms, and diversification into sectors like tech, fintech, and essential business services. Opportunities for PE investors are further supported by generational transitions in family-owned businesses, increased outsourcing, and the presence of multinational GPs.
📝 Business transformation draws investors to Japan’s private equity Adams Street Corporate reforms, digitization, and shareholder activism are driving opportunities for PE in Japan, including take-private deals and overseas expansion. Japan's PE deal value reached c.$35B in 2023 and fundraising outpaced regional peers, supported by favorable valuations, cultural alignment, and founder-led companies embracing PE as an exit option.
📝 Seizing growth opportunities in cross-border funds State Street Luxembourg and Ireland have solidified their positions as leading global fund hubs, managing €5.5T and €4.8T in cross-border funds in 2023, accounting for 95% of Europe's market. Their appeal lies in robust ecosystems, leadership in ETFs and private markets, and advancements in innovation and tech, ensuring their continued dominance in European fund markets.
📝 Buyouts - Navigating the ‘bottom of the iceberg’ TPG The report discusses narrowing valuation gaps, improving macro conditions, and evolving fundraising dynamics. $385B has been raised for PE funds in 9M 2024, with 56% secured by buyout funds. Despite increased deal activity and normalization of yields, significant hurdles remain, including pressure on GPs for liquidity. Experts highlight a rebound in exits and a strategic shift toward growth-oriented operational capabilities and creative deal structures.
📝The opportunities across PE’s current liquidity landscape Neuberger Berman The current PE market presents opportunities for experienced liquidity providers to address challenges like higher capital costs, reduced exits, and slow fundraising cycles. Key strategies include mid-life equity co-investments, GP-led continuation funds, and custom capital solutions, which offer attractive risk-adjusted returns by providing liquidity, supporting portfolio growth, and facilitating distributions in a constrained environment.
📝 Responsible investing in private equity Amundi Global PE AUM is expected to reach $8.5T by 2028.PE and responsible investing align through long-term investment horizons, enabling PE to drive responsible transformation in portfolio companies. Research highlights PE's positive impact on sustainable innovation, growth, and climate transition, positioning it as a critical driver of responsible businesses.
📝 1,000 words or less: Introduction to private equity Stepstone PE offers an attractive alternative for diversification, capital preservation, and superior returns, with average outperformance of public markets by 500+ bps over four decades. PE strategies like VC, leveraged buyouts, and growth equity cater to various risk-return profiles, while innovations like evergreen funds are making PE more accessible to individual investors.
📝 Creating value with AI: The race is on in private equity Bain A Bain survey on PE reveals increasing interest in GenAI, with most investors expecting significant value within three years. However, challenges such as limited AI readiness, data compatibility, and management expertise hinder progress, as 70% of investors backed out of AI-related deals in the past year. While 20% of portfolio companies are starting to realize AI benefits, many are still in early testing or development stages.
✏️ NFL punches above its weight class in the private equity market Institutional Investor The NFL's decision to allow PE firms to acquire up to 10% of its teams has sparked significant interest, with projected PE transactions reaching $12B over the next five years. NFL franchises are highly attractive due to their cultural prominence, surging valuations, and lucrative media rights. PE firms and institutional investors see long-term opportunities in media content, real estate, and international expansion, driving interest in this niche market.
✏️ Hands-on operational improvement key to creating alpha in the middle market Institutional Investor The PE landscape now demands a hands-on approach to portfolio operations to drive profitability and equity value amidst higher borrowing costs. Successful firms integrate investment and operating teams from the thesis stage through execution, focusing on strategic planning, operational improvements, and ongoing support to create scalable, durable businesses and achieve sustainable growth in a competitive market.
📝 Optimizing private credit investment – benefits of a multi-strategy approach LGT Capital Private credit has grown rapidly to $1.7 trillion in AUM by 2023, driven by banks retreating from mid-market lending and evolving regulations. This diverse asset class includes strategies like NAV financing, risk-sharing transactions, and a burgeoning secondary market, offering opportunities for alternative lenders to meet the ongoing demand for financing.
📝 How to make sense of emerging market debt in a global portfolio Principal Asset Management EMD is poised for a strong recovery in 2025, supported by easing monetary policies, stable commodity prices, and resilient growth outside China. Despite recent under-ownership due to past volatility, favorable fundamentals, attractive income streams (7-9% potential), and improving global conditions create a compelling case for strategic reallocation to EMD.
📝 How private debt is developing and why investors are looking for quality Nuveen Private debt is evolving with innovations like infrastructure credit and Property Assessed Clean Energy (PACE) financing, which offer diversification and stability through structural protections and collateral. Investors favor investment-grade opportunities due to attractive yields, reduced risk, and yield enhancements from liquidity premiums.
✏️ How insurers can harness prime opportunities within direct lending M&G Investments Direct lending has grown significantly, driven by banks' retreat from mid-market lending and evolving private credit structures. The conservative end of the mid-market presents attractive opportunities, offering strong returns on capital, stable pricing, and lower risk amid competition. ESG integration and a selective approach are crucial as the market evolves.
✏️ A tale of two markets - The impact of scale on credit risk Man Institute The direct lending market has expanded, with segmentation between upper and core middle markets based on borrower size. While larger borrowers face competitive pricing and looser terms, the core middle market offers higher yields, stronger covenants, and lower defaults. Effective credit selection, risk management, and a focus on smaller borrowers are critical.
✏️ What does it take to excel in credit investing? Robeco A contrarian investment strategy in credit markets capitalizes on inefficiencies created by behavioral biases and fear-driven selling. By adding risk in undervalued, volatile markets and reducing it in overvalued conditions, this approach has consistently delivered outperformance. Examples include capitalizing on the 2020 pandemic and the 2023 bank debt selloff.
✏️ Almost every investor plans to boost bonds Institutional Investor Investors are increasing fixed-income allocations, driven by attractive bond yields and strategic rebalancing from equities after years of strong stock performance. Diversifying beyond traditional bonds to assets like inflation-linked bonds, real estate, and commodities is recommended to address future challenges and hedge against inflation.
✏️ BondBloxx, Virtus crack open the market for private credit ETFs Institutional Investor Two innovative ETFs targeting private credit have launched, offering retail investors access to a sector traditionally reserved for institutions. BondBloxx’s ETF invests in diversified middle-market CLOs, while Virtus targets undervalued AAA-rated private credit CLOs. Despite growing interest in private credit, these funds face challenges like illiquidity and valuation complexities, though they aim to provide transparency and tradability.
✏️ Time to increase your allocation to credit? LGIM The shift towards credit investments is driven by the pursuit of yield and evolving endgame strategies like buy-in, buyout, and run-on. Despite credit spreads being at multi-year lows, schemes and insurers are cautiously adjusting allocations while considering the trade-off between waiting for spreads to widen and capturing current carry.
✏️ Fixed income: Eat meat or die… Abrdn Donald Trump’s second term is expected to drive pro-growth US policies like tax cuts and tariffs, potentially increasing inflation and keeping US Treasury yields elevated, especially for long-term bonds. In contrast, Europe faces economic pressures but could respond with increased defense spending and investment, while the UK’s fiscal plans remain uncertain.
📝 Turning the corner? Commercial real estate themes for 2025 PIMCO The commercial real estate market shows early signs of recovery, with rate cuts stimulating activity, particularly in sectors like multifamily housing. While valuations have likely bottomed for Class A properties, challenges persist for Class B and C assets. Investors are advised to focus on debt opportunities, residential properties, and niche areas like data centers, while exercising caution in sectors like life sciences and weaker office markets.
📝 Infrastructure 2025 Outlook UBS The report highlights a favorable macro environment for private infra investments, with resilient economic growth, declining interest rates, and moderate valuations. While popular sectors like renewables and digital infrastructure attract investor attention, undervalued areas such as utilities, transportation, and infrastructure debt offer potential opportunities.
📝 Real estate investment enters a new era Nuveen Alternative real estate sectors, driven by global megatrends like digitalization and aging populations, offer unique opportunities. Data centers, senior living, and medical outpatient facilities are benefiting from rising demand, while traditional office and retail sectors face challenges from hybrid work and e-commerce. Investors should focus on selective opportunities, such as suburban multifamily housing and grocery-anchored retail.
📝 Infrastructure for powering portfolios Nuveen The S&P 500 is on track for a strong year, but risks like persistent inflation and reduced housing supply loom large. Upcoming economic data and potential policy shifts under the new Trump administration could impact markets. Investors may benefit from resilient asset classes like real assets, which offer diversification, income, and inflation hedging.
📝 Global real estate outlook 2025: A new chapter begins M&G Investments Real estate investments are gaining appeal as global markets stabilize and enter recovery, offering attractive returns driven by lower entry prices and strengthening rental growth. However, success hinges on selecting the right assets in favorable locations, leveraging structural sector trends, and repositioning weaker assets early in the cycle to capitalize in 2025.
✏️ Key infrastructure themes for the year ahead Hamilton Lane Infrastructure offers opportunities in middle-market assets with attractive valuations and potential for value creation. Secondary and co-investment transactions are gaining traction, offering near-term realizations and strong long-term returns, while regions like North America and Western Europe remain key areas of focus. The market is expected to grow significantly over the next decade, with increasing specialization and a more robust manager landscape.
✏️ The space industry is booming. Manufacturers must catch up. BCG The global space economy is projected to exceed $1T by 2040, creating significant opportunities for manufacturers of satellites, rockets, and other space components. To meet growing demand, firms must address challenges in strategy, talent, design, supplier collaboration, and operational efficiency, enabling higher production volumes, cost reductions, and faster turnaround times.
AI x Tech
📝 Fintech’s powerful momentum: 10 key charts Robeco The fintech sector is experiencing a robust recovery in 2024, driven by global consumer penetration in payments and financial services and a resurgence in capital markets activity. With key M&A deals, new IPO plans, and new unicorns emerging, the fintech ecosystem is poised for significant growth, offering diverse investment opportunities.
✏️ Harnessing the power of AI to enhance investment decision-making Goldman Sachs The integration of AI in investment processes enables investors to analyze vast, complex datasets, uncovering actionable insights and improving decision-making. By combining traditional metrics with innovative AI-driven analysis, strategies like sentiment analysis from earnings calls and thematic linkages across stocks provide a more comprehensive understanding of companies and market trends, enhancing alpha generation.
✏️ Consumer building blocks in the age of AI Lightspeed The evolution of consumer technology has accelerated with AI as the defining force of the current supercycle. Lightspeed is realigning its Consumer investing team to focus on AI-driven opportunities across sectors like media, health, finance, and gaming. Managers aim to deepen cross-sector collaboration and expand their portfolio of AI-native companies.
✏️AI-enabled disruption in fintech Lightspeed Fintech leaders discuss AI's current challenges and opportunities, noting progress in AI's ability to process data but highlighting remaining limitations. Startups have an edge in agility, while incumbents leverage ecosystem strengths. Emerging opportunities lie in optimizing workflows and HR tasks, but staying ahead of copycat competitors is crucial for innovation.
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