“We believe these mega forces--digital disruption and AI, the low-carbon transition, demographic divergence, the future of finance and geopolitical fragmentation--offer major investment opportunities,” stated Edwin Conway, global head of equity, private markets, at Blackrock, in the firm’s 2024 outlook report on private markets. Photo: Shutterstock

“We believe these mega forces--digital disruption and AI, the low-carbon transition, demographic divergence, the future of finance and geopolitical fragmentation--offer major investment opportunities,” stated Edwin Conway, global head of equity, private markets, at Blackrock, in the firm’s 2024 outlook report on private markets. Photo: Shutterstock

Four ‘mega forces’ including an aging population and shifts in lending patterns will influence private market investments in the coming year, according to Blackrock’s 2024 outlook report.

Sustainable infrastructure, the expansion of the private debt market, the impact of artificial intelligence and digital technology on private equity, and the evolving landscape of real estate investments. Those are the four primary mega trends that will shape private markets in 2024 that Blackrock, a leading global investment management firm, has identified in its 2024 outlook report in December 2023. These forces are pivotal in shaping investment opportunities, despite the challenges posed by higher interest rates, inflation and market volatility.

In the report, Edwin Conway, global head of private equity markets at Blackrock, highlighted the diversity within private markets, which cover various sectors, geographies, investment styles and risk appetites. He emphasised that successful portfolio management depends on understanding these differences and selecting investments that meet individual investor needs.

Private markets

Private markets are poised for growth due to several factors, said Blackrock. Banks are scaling back their balance sheets, leading to stricter lending standards and creating opportunities in private debt markets. Additionally, more companies are choosing to remain private for longer, making these markets increasingly significant in the broader economy. With flexible and expedited financing options, private markets attract companies seeking alternatives to public markets in challenging economic times.

Heading into 2024, with less capital available for investments, investors are becoming more selective, argued Blackrock. While some asset classes have seen a decrease in capital availability, infrastructure investments in North America are an exception. According to the report, the overall volume of uninvested capital has grown, presenting attractive entry points for new investments in high-quality companies with solid capital structures.

Infrastructure

In the field of infrastructure, the firm identified a unique opportunity for investors with available capital to acquire high-quality properties at valuations not seen in nearly a decade. The shift to a low-carbon economy is driving new investment opportunities in infrastructure and beyond, reasoned Blackrock. Governments are focusing on self-sufficiency and security, leading to investments in domestic industrial infrastructure and the onshoring or near-shoring of critical industries.

Blackrock predicts a substantial increase in the adoption of low-carbon energy sources, with potential annual capital investments exceeding US$4trn in the global energy system by 2050. Advances in energy storage, electrified transport and alternative fuels are expected to improve efficiency and reduce costs, underscored the report.

Real estate

The real estate sector is adapting to demographic and urbanisation trends, with investments moving towards housing and commercial projects in emerging urban areas. The aging of millennials and baby boomers is significantly impacting the market, the report said, driving demand for larger-format apartment units, suburban houses, and essential retail locations in high-traffic areas. Retirees are boosting demand for destination retail and medical office space, offering further investment opportunities. Capitalising on these trends, according to Blackrock, requires an in-depth understanding of regional, economic and cultural dynamics.

Private debt

The private debt market is experiencing significant expansion, driven by changes in traditional lending landscapes. Private lending activities are increasing, and according to the report, moving away from traditional banking systems. Blackrock expects the global private debt market to potentially reach US$3.5trn in assets under management by the end of 2028, a substantial increase from US$1.6trn reported in March 2023.

Factors contributing to this growth include borrowers’ preference for customised funding solutions, investor demand for portfolio diversification, structural shifts in public markets that leave large borrowers underserved and reduced bank credit availability. Private debt loss rates have been favourable compared to public markets, enhancing the attractiveness of this asset class, underscored Blackrock in its outlook report.

Private equity

In private equity, sectors like digital transformation and AI integration continue to thrive. Blackrock foresees increased deal activity in the near term, offering attractive returns for private equity investors with access to capital. AI is increasingly being recognised as a tool to enhance efficiency and revolutionise business models, with investments in AI applications such as ChatGPT becoming more common, improving critical workflows across various sectors.

Blackrock acknowledged AI as an investment opportunity in disruptor companies that could shift the balance of power back to industry incumbents. However, due to the intense media focus on AI, thorough due diligence is crucial to validate claims, as this technology and its applications are constantly evolving.

This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .

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