Private markets predicted to continue outperforming listed stocks
Confidence in private markets remains exceptionally high compared to public markets, according to the latest Global Investor Survey by Adams Street.
Its fourth annual private markets outlook and investor survey has revealed that 88 per cent of respondents agree that private markets will continue to outperform public markets in the long run, representing an uplift from 86 per cent in the previous survey.
Moreover, 67 per cent of investors expect to increase private market deployments in 2024 and 39 per cent of respondents view rising interest rates and inflation as the biggest challenges in private markets, down from more than half (55 per cent) a year ago.
Read more: Alternative lenders and private debt funds fill SME funding gap
The survey highlighted a growing consensus that rates have already peaked, with 46 per cent strongly agreeing that they will be lower at the end of this year than they were at the end of 2023.
“While a ‘higher for longer’ interest rate scenario is a possibility, interest rates are below the average for the 1970s and 1980s, an era when venture capital in its modern form began to flourish, suggesting that a higher cost of capital may not be an impediment to the asset class today,” the report stated.
Running a close joint second for the greatest challenges faced by private markets were market volatility and environmental, social and governance considerations both at 35 per cent.
With around 40 countries facing election uncertainty this year, 22 per cent flagged geopolitical tensions as a major investment challenge. Of greatest concern was US political stability, with 55 per cent flagging this.
Read more: Private markets growth boosts Schroders’ AUM
Meanwhile, the survey found that the proportion of respondents looking to sell assets in the secondary market rose to 36 per cent this year, compared with 27 per cent a year earlier.
Between 81 per cent and 88 per cent of investors said they expect to allocate up to a fifth of their private market assets each to secondaries, private credit, venture capital, and/or buyouts over the next five years.
The report cited Evercore’s 2023 Secondary Market Survey, which found that 2023 was the second biggest for secondaries, with $114bn (£90bn) of transactions recorded, up from $103bn the previous year.
“The flexibility offered by private credit providers, coupled with attractive returns from floating-rate structures and greater lender protections, make the asset class highly favoured by investors and borrowers,” the report stated.
One of the report’s authors, Societe Generale Private Banking head of private equity Eric Molinier, said clients had a clear preference for private credit and infrastructure exposure in 2023.
He credited the relative success of these strategies amid market volatility as partly due to their resilient profiles and inherent downside protection.
Meanwhile, Meketa Investment Group co-chief executive Stephen McCourt noted that private credit strategies need to explain how they compare with traditional coupon-paying liquid debt options that investors may be more familiar with.
Read more: Private debt’s inherent liquidity attracts evergreen managers
