This shift demands a hands-on approach, especially in private equity, requiring stringent cash management in portfolio companies, while buyout investors may face challenges during exits. Private debt managers should prepare for potential loan foreclosures while real estate investors should pivot towards value-add strategies, emphasising asset repositioning and value extraction.
- Private equity: A discerning approach is required, favouring the secondary market as a prime opportunity due to structural factors, and relying on managers' value creation abilities rather than resorting to cumbersome financial engineering to generate liquidity. Reserves of disposable cash will enable managers to seize attractive valuations swiftly.
- Private debt: The private debt sector is transitioning from traditional direct lending strategies to more diverse and specialised approaches. The resulting challenges like heightened competition and compressed margins are prompting investors to explore alternative avenues such as hybrid capital and structured financing.
- Real estate: The real estate investment landscape is evolving towards greater fragmentation, as traditional stabilised assets like office and retail spaces may not yield substantial returns.Factors such as ESG considerations are impacting office spaces and unexpected resilience has been observed in certain retail segments since Covid. Diversification offers pockets of attractive opportunities.
- Infrastructure: Investments leveraging megatrends, with an emphasis on a modernised outlook driven by decarbonisation, circular economy, and digitalisation, offer upside returns with strong regulatory support.
Thorough manager and deal selection, grounded in realistic assumptions, are crucial in this transformed market.