The 2024 stage is for private markets

Ease of access, high rates for longer, tax incentives. According to Jeff Carlin, head of Global Wealth Advisory Services at Nuveen, these are the variables that will bring private assets to the attention of investors

by FocusRisparmio

The macroeconomic picture in 2024 will likely spur demand for private assets from all types of investors. Jeff Carlin, head of Global Wealth Advisory Services at Nuveen, is convinced of this, saying that the realization of such a scenario depends on various macro factors but also on the fact that the focus of many central banks is shifting "from how much to raise rates to how long to keep them at high levels." A shift in focus that is the child of the increasingly data-dependent approach of the Fed and ECB, for whom a change in monetary policy will not come without evidence on steadily declining inflation or slowing economic growth or even a weakening labor market.

From taxation to democratization: the drivers of openness

"Tax incentives from many governments around the world will also support private markets' assets," Carlin argues. Specifically, he says, policies that encourage energy security and the transition to a low-carbon economy will be particularly influential.

"In the U.S., it is estimated that the Infrastructure Investment and Jobs Act and the Inflation Reduction Act will channel trillions of dollars into these sectors," the expert explains, highlighting how the same is set to happen in Europe with Repower Eu and Green Deal Industrial Plan. Finally, the manager also cites the ease of market access. "Although they were previously considered the exclusive preserve of institutional investors," Carlin says, "we expect that 2024 will see greater involvement in private markets for other types of players as well." A dynamic that can also be attributed to the management companies themselves, which need new capital to fund these attractive investment opportunities and are therefore creating or adapting "investment vehicles to meet the needs of smaller investors."

Full ahead on infrastructure

As for asset allocation, infrastructure should benefit from still high inflation and to the management house seems well positioned to offer some resilience to slowing growth.? "These assets often provide essential services, from power generation to water and waste management but also roads, bridges rather than communications networks and data centers," Carlin explains. Who adds, "The constant demand for these services, coupled with limited competition due to their size and capital-intensive nature, makes the sector less sensitive to economic cycles and changing market conditions." Not only that. In his view, the category also represents "a source of stable returns" and provides cash flows that provide "additional protection in difficult economic environments": because they are generated from long-term contracts, they often adjust for inflation or a higher cost of capital.

But there is also private credit. As long as it is selected

As for private credit, having demonstrated its resilience in an environment of high rates and inflation, Nuveen expects it to continue on this trend in 2024. "Higher base rates equate to higher yields," Carlin explains. In addition, he adds, "higher interest costs and more conservative capital structures lead new deals to be structured with less leverage and arrangements that are often more favorable to lenders." Given the macroeconomic challenges facing borrowers, diversification and selection skills then remain key in the manager's perspective: "We favor market-leading companies with stable and recurring cash flows in non-cyclical sectors that are in a good position to pay interest and repay loans." Instead, the sector focus is on the most resilient market areas, such as health care or software and business services: "All sectors that, in our view, are well positioned to weather economic downturns."

The hidden value of the natural capital

The characteristic of natural capital to offer a hedge against inflation should also come in handy for investors during the year. "Many of the products of agricultural and forest land, such as food and timber for construction, are often components of indices used to record inflation. And its rise reflects the increase in prices of these goods," Carlin explains. Who adds, "In the short run, higher prices improve returns while they can also strengthen the capital appreciation component over the long run." All this without forgetting, he points out, that investing in this asset class helps environmental goals: "Investments in natural capital, such as forest and agricultural land, have the lowest average carbon intensity (or net CO2 emissions per euro invested) among alternative and traditional asset classes." "Beyond current macroeconomic factors, long-term structural trends are likely to transform the category from a niche sub-fund to a fundamental and resilient component of a long-term portfolio," Carlin concludes.