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.
Private credit
As we look to 2024, our view for direct lending is that the backdrop supporting a more favourable 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 Limited Parternships (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.
Private equity
With record levels of dry powder now four years or older,1 depressed debt coverage ratios, and a looming refinancing wall, we believe 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, in our view.
Real assets
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.
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.
Commodities
Commodity prices remain volatile and rangebound across most sub-complexes. While our secular trend assessment is increasingly attractive, we caution it is subject to sudden change.
Our scale, combined with the breadth and depth of our offering, means we have the flexibility to meet your needs as markets evolve.
Source: Preqin, as of 6/30/23
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Advisors are seeking resources to explain alternatives to clients
New research from Cerulli Associates shines a light on the need for education about alternative investments — both for advisors and their clients.
Get the latest information and insights from our portfolio managers, market strategists, and investment experts.
Important information
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Information is provided as at December 31, 2023, sourced from Invesco unless otherwise stated.
Base rates are represented by Secured Overnight Financing Rate (SOFR) from the Federal Reserve of New York
The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
Dry powder in private equity generally means cash or highly liquid securities that private equity or venture capital funds have on hand but have not yet deployed (I.e., invested).
Alternative products typically hold more non-traditional investments and employ more complex trading strategies, including hedging and leveraging through derivatives, short selling and opportunistic strategies that change with market conditions. Investors considering alternatives should be aware of their unique characteristics and additional risks from the strategies they use. Like all investments, performance will fluctuate. You can lose money.
Alternative strategies typically are subject to increased risk and loss of principal. Consequently, investments such as exchange-traded funds which focus on alternative strategies are not suitable for all investors.
Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments.
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