Schroders Capital, which offers a range of private assets investment strategies, has discussed the outlook for private assets in 2023 and the five long-term investment megatrends which are defining the sector.

At a media event this week, Nils Rode, the chief investment officer at Schroders Capital said that private asset investors are facing a complex mix of challenges and risks in 2023. The likelihood of a prolonged recession is significant, although less prominent in recent weeks and inflation is high, interest rates are rising, while overall debt is elevated. 

In addition, the ongoing energy crisis, the war in Ukraine and continued fears over social inequality and populism are fuelling further doubts about the outlook for 2023.

The two-year boom for private assets, especially private equity, as seen in 2020 and 2021 due to the stimulus measures created in response to Covid, is also now finished, Rode continued.

Low unemployment levels could extend central banks tightening monetary policy, which could increase the risk of recession, he said.

Nevertheless, Rode added, for private assets, past crises were an opportunity, with recession years proving good for many strategies. 

Private assets is a long-term investment class, with holding periods of five to 10 years or more. Rode, who is optimistic for private assets in the mid to long-term, highlighted five long-term investment megatrends. These include climate change, sustainable lifestyles, an ageing population, the growth of emerging markets, and the technological revolution. 

Several technological breakthroughs took place in 2022, such as rapid progress in quantum computing, meaning that technological disruptions can impact private equity investments of all types. 

Investment opportunities  
Rode, who believes that growth will continue in private assets, sees attractive investment opportunities in this market. 

For private equity, he favours small/mid healthcare buyouts, early-stage biotechnology and Indian growth investments. For private debt and credit alternatives, Rode likes mid-sized infrastructure and real estate debt, whilst for real estate equity, he favours affordable housing and student living. 

Rode favours renewable energy for infrastructure (wind, solar, biomass), hydrogen infrastructure and health care infrastructure.

Impact investing 
With ESG-focused investment becoming increasingly important, head of sustainability and impact, Maria Teresa Zappia, released the firm's 2022 Sustainability and Impact report, which pinpoints the challenges and opportunities in 2023 and how to address them.

Zappia said the firm is setting up a database and tracking the increasingly demanding regulatory changes – such as the EU’s Sustainable Financial Disclosure Regulation – to protect against greenwashing. It has also increased its sustainability and impact team, and used sustainability-related financial reporting standards to check performance and drive returns, she added.