BlackRock has just 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.

BlackRock, the world's largest asset manager, manages $317 billion in liquid and illiquid alternative investments and commitments on behalf of clients worldwide, with a total AuM of $8.6 trillion. So when this US organization holds forth about a sector, such as private markets and alternative investments as below, it carries weight.

Edwin Conway, global head of equity private markets at BlackRock, thinks that several mega forces including the low-carbon transition, digital disruption and artificial intelligence (AI), demographic divergence, the future of finance and geopolitical fragmentation, will offer investment opportunities in the coming year.

Conway expects private markets will remain an attractive option for investors to deploy capital in 2024 and beyond. “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,” he said in a note. 

Over the past decade, private market investing - debt, equity, venture capital, real estate and infrastructure - have drawn attention from family offices, wealth managers and advisors to HNW individuals seeking higher yields, as those on listed equities and government debt were hit by ultra-low interest rates post-2008. The rises in rates since the pandemic, however, have put the sector under a harsher spotlight, affecting sectors such as VC funds, for example. 

Earlier in December, a survey of 260 financial advisors in the US found that more than half of them (62 per cent) put between 6 per cent and a quarter of clients’ portfolio allocations into alternative assets, and the clear majority (85 per cent) plan to hike this further. 

Infrastructure
As an asset class, infrastructure is having a moment, he added. As the backbone of the economy, he thinks that infrastructure offers steady cashflows with long-term, inflation-linked contracts that can span decades – a significant advantage in a volatile environment.

Conway believes that 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 for 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 $4 trillion per year of capital investment in the global energy system through 2050, up from around $2 trillion per annum at present, with low-carbon energy sources making approximately 70 per cent of the world's energy by 2050

Private debt
While direct lending is the largest private debt strategy type, the “mix shift” of private debt fundraising varies from year to year. In 2024, Conway thinks that 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.

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, he said. Meanwhile, the banking industry 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 trillion in assets under management by year-end 2028.

Private equity
BlackRock is positive about the asset class and the marketplace's ability 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.

Stability is returning to the debt markets, contributing to a more favorable borrowing environment, Conway said. 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
Conway believes that there are opportunities for real estate investors. In today’s dislocated macroeconomic environment, investors can purchase high-quality assets at attractive prices – often below replacement cost, he said. 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, he added. Millennials are growing their families, resulting in an increased demand for affordable housing stock and related necessity retail like supermarkets, strip mall complexes and service providers such as childcare centers.

At the same time, he thinks that a “silver wave” – the world population of aging Baby Boomers – 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, he added. Not all opportunities in this environment will be created equally.