Apollo Global Management, Neuberger Berman And Oaktree Capital Provide Private Markets Perspectives In PM Alpha Outlook Webcast
Q4 2022 hedge fund letters, conferences and more
And Quinn Kuiken, Vice President, European Principal and Private Debt Product Specialist at Oaktree Capital giving their outlook for 2023 across asset classes and sectors including credit, real assets, technology and healthcare.
The webcast – titled: Private Markets CIO Perspectives & Allocations 2023 – The Year of the (Re)balancing Act – drew from key insights of PM Alpha Founder & CIO Alexis Weber, whose CIO Private Markets Perspectives & Allocations Series report recently highlighted investment opportunities in macro drivers and secular trends.
Perspectives On Private Markets
Alexis Weber said: “We've identified three core macro drivers that we believe should constitute 65% or more of one's portfolio exposure to private markets.”
“First of all, the Great Correction focusing on the dislocations and the repricing we’re seeing in real assets all the way to public equity or debt structures. Secondly, the high impact of Inflationary Pressures, which is a key element of our allocation where we believe we can help investors in their medium to long term income protection, but also reposition their current credit portfolios to more inflationary protected strategies.
Thirdly, the Income Gap is an ongoing driver of investors’ portfolios over the last three to four vintages, and this is one where we can drive value for investors through specialised income and alternative income strategies.”
“The secular trends represent a 35% allocation [of one's portfolio exposure to private markets] for 2023, widely spread across two major drivers: Technology on both the consumer and corporate side; and Healthcare, where we have seen a shift and rapid growth in services payments and other types of private market opportunities that have a medium to longer term growth aspiration.”
Key areas of opportunity within these macro drivers and secular trends noted by the participating investment managers include:
- It is a good time to be a lender, as markets are showing a significant amount of volatility and the cost of capital has increased across the board. Specialist managers continue to favour the senior capital structure, in floating rate instruments, where they can focus on downside protection by creating new loan products in high quality assets that can generate equity-like returns.
- They see vast opportunity in the real assets space given recent dislocations and deleveraging pressure in Europe. Given stable fundamentals, they believe the most attractive way to play is stepping into the gaps left behind by traditional lenders (i.e. banks) and originating new credit.
- Within real assets, some interesting areas include internet infrastructure and data centres. There is an element of protection from inflation from indexation, as contracts are usually linked to inflation. In addition, specialist managers can build in additional downside protection by customising the structures of the credit instruments they employ and avoiding covenant-lite structures.
- Opportunities for investment managers to enhance the value of real assets to generate better rents or lease rates, as single real estate asset owners are unable to access easy capital.
- In the US, focusing on alternative income in healthcare and life sciences derived from royalties, where certain structuring tools are used to mitigate the risks of inflation. Also, favour the consumer sector in the US where they see a rotation of demand, as a reaction to the pandemic (“echoes of the pandemic”). There is continued high demand for services in travel, hospitality, and restaurants, still being powered by relatively low unemployment in the US and excess savings, which may change.
- On sustainability, an interesting area in energy transition is investing in the companies that are providing services for the energy transition revolution (e.g. labour, software tools). Another area to watch is the large volume of real assets that will require a forthcoming transition to energy efficiency and to reduce their carbon footprint in the coming years.
PM Alpha Founder & CEO Tom Douie, commenting on the opportunities spotted by the participating mangers, said: “It is well documented and demonstrated that recessionary periods yield the very best vintages and marks private markets.
As a result, we believe that private market strategies should be part of all client portfolios and suggest a range of anywhere between 10 and 60% of portfolio allocations dependent upon the risk appetite and investment time horizons of the client in question.”
A recording of the webcast is available for registered users at PM Alpha’s digital platform.
About Private Markets Alpha
PM Alpha is a digital marketplace for Asset & Wealth Managers, Advisors and Distributors to access and distribute the power of private markets investments utilising a flexible open architecture platform.
