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Private Markets Outlook Remains Strong, But Investors Must Be Choosy – BlackRock

Tom Burroughes, Group Editor, 7 January 2022

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Drivers and tailwinds
The report, entitled 2022 Private Markets Outlook: Resilience and Adaptation, said that the coming 12 months should see a wider rise in real assets as markets rebound from the disruptions of COVID-19 and associated State restrictions. 

Among its predictions, the report said that private credit assets under management are expected to expand 11 per cent per year to $1.46 trillion by 2025

“For real assets, we see the cyclical rebound, technological change and the response to climate change as three dominant drivers of the outlook. At the same time, the market is driven by a decoupled rebound due to variations in reopening strategies and a longer-term push towards re-shored supply chains; a differentiated market upswing across sectors, reflecting the booming conditions in logistics, telecom and renewable power, and a lagging recovery in air transport and hospitality; and finally a competitive deployment stage, due to abundant capital moving into real assets, partly reflecting a shift from other asset classes for relatively higher and more resilient yields.

“For infrastructure markets, the outlook is marked by the 3Ds of decarbonisation, digitalisation and decentralisation. The push to decarbonise the global economy requires a massive energy transition from fossil fuels to renewables, not just with the mainstays of solar and wind, but increasingly with carbon capture, battery storage and blue and green hydrogen. The digital world continues to transform our daily lives, with online work, shopping, schooling and entertainment markedly accelerated by the pandemic, as robotics and automation deliver genuine productivity gains. 

“Moreover, infrastructure services are decentralising on several fronts, as location becomes less important for virtual work and shopping, and as holdings diversify for resilience and operational efficiency.

"For real estate markets, the 3Ds of infrastructure are similarly applicable, while we see several additional drivers at work. In particular, the wide and sustained divergence in performance between the winners (sheds and beds) and losers (hotels and retail) are likely to be sustained for now, providing considerable scope for alpha from sector selection. At the same time, distressed and dislocated real estate segments are starting to show signs of deep value, although these opportunities need on-the-ground, off-market sourcing capabilities to unlock. Looking further ahead, long-run demographic drivers remain all-important, with local differences in population and ageing trends making compelling cases for childcare centers in Australia, multifamily housing in the US and senior living in Japan,” it concluded.

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