Read the latest report on the outlook for private credit, private equity, real estate, infrastructure and commodities.
Key takeaways from this edition
Private credit
The current environment is extremely conducive to executing conservatively structured transactions. Leverage levels on new transactions across the market have declined, while Loan-to Value (LTV) metrics have meaningfully improved. Given the improved structures, current transactions are being completed with significant equity in a first-loss position.
We are anticipating an improved opportunity set within distressed and special situations debt, as the $6 trillion market across leveraged credit is quite sizable on an absolute basis. Meanwhile, commercial real estate debt is anticipated to remain highly attractive, especially for those with favourable sources of financing.
Private equity
We have seen a heightened focus on growth equity strategies, with illustrated growth equity representing roughly one out of every five deals during the quarter. The growth equity deal count is on pace to potentially exceed total LBO volume, if you exclude add-on transactions. This highlights the continued theme, reflecting a more favourable opportunity set for companies that can rely on organic growth to drive return.
Real assets
Capital markets are disrupted as yields and cap rates are increasing in reaction to elevated interest rates. While asset values continue to reprice, banks are focused on existing loan books and so offer limited new liquidity. This is impacting the volume of real estate transactions in all key markets.
Infrastructure
The level of dry powder remains elevated and valuations, similar to those in real estate, have not backed up with base rates. However, near term fundamentals are strong and secular tailwinds are supportive.
Commodities
Commodity prices remain volatile and rangebound across most sub-complexes. While our secular trend assessment is currently net attractive, we caution it is subject to sudden change.
Investment risks
The value of investments and any income will fluctuate. This may partly be the result of exchange rate fluctuations. Investors may not get back the full amount invested.
Alternative investment products may involve a higher degree of risk, may engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, may not be required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual portfolios, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. There is often no secondary market for private equity interests, and none is expected to develop. There may be restrictions on transferring interests in such investments.
Important information
All data is provided as at 31 December 2023, sourced from Invesco unless otherwise stated.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy.
Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change.
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