Alternative opportunities: 2024 Outlook
Read our analysis and take a look at our summary dashboard across key alternative asset classes.
Alternative Opportunities is a quarterly report from Invesco Solutions. In each new edition, we look at the outlook for private market assets. In particular, we focus on private credit, private equity, real estate, infrastructure and commodities.
Alternative asset positioning based on valuations, fundamentals, and secular trend, across and within:
As we look to 2024, our view for direct lending is that the backdrop supporting a more favorable transaction environment is firmly in place relative to 2023, including better visibility into the macro environment, softening inflationary pressures, potential rate reductions and heightened pressure from LPs for private equity firms to generate realizations and invest in new platform companies. Within distressed debt and special situations, we are seeing a significant amount of liquidity-constrained small caps that are “good companies” with “bad balance sheets”, providing an expanded opportunity set for the asset class.
With record levels of dry powder now four years or older, depressed debt coverage ratios, and a looming refinancing wall, opportunities should present themselves for managers with turnaround experience in an environment where General Partners (GPs) are highly incentivized to ramp up purchase activity. While still at valuations that exceed pre-2021 levels, the correction in late-stage venture valuations should provide a continued opportunity for private equity firms with a flexible mandate.
Despite a subdued transaction environment, many real estate markets continue to see robust income fundamentals. We note that leasing has slowed broadly across property types in the US, where we expect the recovery in fundamentals to lag the capital markets recovery. Within infrastructure, while dry powder remains elevated, and valuations, like those in real estate, have not backed up with base rates, near term fundamentals are strong and secular tailwinds are supportive. Commodity prices remain volatile and rangebound across most sub-complexes.
Alternative opportunities: 2024 Outlook
Read our analysis and take a look at our summary dashboard across key alternative asset classes.
A broad range of investments fall into the ‘alternatives’ asset class, including real estate, private credit, private equity, infrastructure and hedge funds. The asset class is growing, as investors continue to turn to alternatives for diversification and to navigate challenging market conditions.
Alternative assets often behave differently to public market assets like equities and bonds. Their unique characteristics mean that they can help investors achieve a diversified portfolio. Typically, they also generate higher returns than public market assets.
We manage over $177 billion (as of 30 September 2023) in alternative strategies, spanning private credit, real estate, private equity and beyond. We share some highlights below:
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Real estate 2024 investment outlook
Investing through market corrections has historically driven outperformance for real estate investors. We believe this will continue into 2024.
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.
All data is provided as at 29 February 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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