New trends in the private asset market

New trends in the private asset market
New trends in the private asset market

The growth of private markets has so far been driven mainly by demand from institutional investors such as sovereign wealth funds, insurance companies and pension funds, among others. However, various experts from M&G Investments They note the expansion in the number of topics of conversation around private markets, as well as a greater interest in various forms of access to them, such as through strategies of impact. “There are three big changes in this market that are too big to ignore: the size of the opportunity set, the increase in the number of geographies and the very definition of what the opportunities are. private assetswhich has been expanded,” he says. Ciaran MulliganCIO of Investment Management and Oversight and co-head of M&G Life’s Treasury and Investment office.

Opportunities by segment

The global financial crisis marked a turning point for private markets from the perspective of the credit originationby transferring much of the prominence that banks once held to other, more agile players in the market. Emmanuel DeblancCIO of Private Markets at M&G Investments, says that to operate in private markets “size and a good name are important, because it inspires confidence in banks and this has a multiplier effect in making banks feel comfortable with underwriting assets.”

The expert also notes that the investment ecosystem has evolved, giving as an example that many can now be seen infrastructure funds They have their own financing team, which allows them to capture flows beyond the banking sector. He also notes that the role of banks has evolved and they now act more as facilitators than in the past, advising on transactions without having to take positions on their balance sheet.

Deblanc adds that the emergence of large structural investment themes is also affecting this investment universe, citing specifically the climate transition: “It will provide key growth for this asset class, by allowing access to thematic investments in energy and social infrastructure.” “Investments in energy transition open up a large investment position in terms of risk and volume; we are seeing much faster growth than expected five years ago, but this has been accelerated by the geopolitical events of recent years,” adds the expert.

As for private credit, Deblanc says the investment universe has expanded and matured significantly, although it is still an “inefficient, very complex market where it is necessary to understand the local context.” Ciaran Mulligan adds to these observations the increase in capabilities in Europe and, to a lesser extent, in emerging markets, where professional investors such as M&G are beginning to think about the possibilities that this universe offers via leveraged loans, direct lending y corporate debtThe expert clarifies that the investment horizon is crucial for investing in this type of asset, with a recommended duration of 15 to 25 years. With this in mind, operations “will take into account that debt levels will increase in the future.” In the specific case of M&G, the private credit investment strategy focuses on companies with revenues between 40 and 100 million euros, considering that it is a segment in which there is less activity.

He structured credit It is the last segment that Deblanc mentions, particularly in the segment of ABSThe expert recalls that this is a market in which “there are fewer players, because it is a complex asset in a closed market”, but in exchange, it offers the possibility of a differential with additional points of profitability. The expert observes that capital requirements have increased, a trend that has been accelerated by the fall of Silicon Valley Bank and that opens up new opportunities for investors in “a very sophisticated segment of the market”.

M&G Investments manages €84 billion in private assets, of which the segment with the largest assets is real estate, with more than €39 billion.

A transition phase

Deblanc sees no systemic risk in private markets, and considers the current environment, in which global GDP is set to hover between 2% and 3% and in which there is also no excess demand, to be benign for this investment universe. That said, he says the market is undergoing a transition phase, because the large gap that used to exist between buyers and sellers is narrowing. It is a trend that he believes will accelerate from the fourth quarter of 2024 and will result in an increase in the dispersion among managers: “Good managers will become more visible,” he concluded.

Neal BrooksGlobal Head of Product and Distribution at M&G Investments, admits that private asset market growth has slowed in recent months as a result of the ‘higher for longer’ environment, but he expects demand to continue to the point that he expects the total investment universe to reach $13 trillion by 2028, mainly in three areas: infrastructure, private equity and private debt. Brooks speaks of a growing appetite from clients, but also from governments and regulators, which he believes will allow markets to open up by allowing access to a greater number of companies. This growth will occur, in the expert’s opinion, to the detriment of other vehicles that have traditionally been used to gain exposure to these markets, such as bonds, bonds and bonds. hedge funds.

Finally, Brooks highlighted the importance of the current moment in terms of developing product strategies that are accessible to a broad range of investors, given that currently 80% of companies with more than 100 billion in revenue are not listed on a public market, in addition to the increasing trend of listed companies being delisted and then going private again. M&G is moving forward with the development of new structures that seek to facilitate this access, for example, by launching ELTIFs“Financial education is very important, clients themselves are aware that they need it to help them correctly allocate their capital,” concludes Brooks.

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