BlackRock released its 2024 Private Markets Outlook, with investment views on how private markets – spanning different sectors, geographies, investment styles, and risk appetites – will evolve in the year ahead. Several mega forces including the low-carbon transition, digital disruption and AI, demographic divergence, the future of finance and geopolitical fragmentation, are expected to offer major investment opportunities in the coming year, despite significant headwinds in 2023.
“Private markets are evolving rapidly and presenting substantial opportunities that can be captured with the right strategy. We expect private markets will remain an attractive option for investors to deploy capital in 2024 and beyond,” said Edwin Conway, Global Head of Equity Private Markets, BlackRock. “While the macroeconomic volatility we saw this past year resulted in more capital left on the sidelines, we expect new higher-quality opportunities with favorable deal structures to emerge for investors across asset classes in the year ahead.”
Infrastructure: Resilience and growth driven by the adoption of low-carbon energy sources
As an asset class, infrastructure is having a moment. As the backbone of the economy, infrastructure offers steady cashflows with long-term, inflation-linked contracts that can span decades – a significant advantage in a volatile environment.
The need to reconfigure the global energy system to decarbonize the economy is one driving mega force that presents considerable long-term private markets investment opportunities in infrastructure development, particularly around energy storage, the electrification of transport, and alternative fuels for aviation and marine.
The BlackRock Investment Institute Transition Scenario predicts that the adoption of low-carbon energy sources could result in an average of USD $4 trillion per year of capital investment in the global energy system through 2050, up from around $2 trillion per year at present, with low-carbon energy sources making up around 70% of the world's energy by 20501.
Private Debt: Dispersion, not disruption
The structural shifts in the public financing markets – another mega force – have enabled private debt to continue to grow, cementing its status as an established asset class suitable for a wide range of long-term investors. While direct lending is the largest private debt strategy type, the “mix shift” of private debt fundraising varies from year to year, and in 2024, the higher cost of capital is likely to impact sectors and firms differently, due to their varying degrees of pricing power, business strength, and capital-structure management2.
As the private credit market evolves, it is leading to a dispersion of sources from which companies can raise capital. Borrowers are increasingly looking for flexible capital or customized funding solutions with many running a “dual track” process, using private and public funding sources simultaneously. The banking industry meanwhile is serving ever-larger borrowers, leaving a hole in the middle-market for private market lenders to step into. BlackRock estimates that the global private debt market will reach $3.5 trillion3 in AUM by year-end 2028.
Private Equity: Adjusting to a new era
Private equity is in a period of adjustment in the current era of higher rates and market uncertainty. BlackRock maintains a positive view on the asset class and the ability of the marketplace to adapt, given its historical outperformance during times of market volatility, new unique investment opportunities generated by the mega force of artificial intelligence technology advancement, and several signs that the deal landscape could be attractive for buyers:
Sellers are motivated as there has been little to no access to the IPO market and low buyside sponsor demand over the last two years.
Stability is returning to the debt markets, contributing to a more favorable borrowing environment.
An increase in corporate carve-out activity should generate additional opportunities for private equity to acquire non-core divisions with proven business models and untapped potential.
Volatility in the public equity markets and the higher rate environment will continue to put pressure on valuations, forcing buyers to price deals more conservatively to preserve returns5.
The need for realizations and maturing capital structures in a deal-challenged environment are driving private equity owners to evaluate minority sales and structured capital raises – presenting attractive risk-return dynamics and a buyer-friendly market.
BlackRock is optimistic that deal activity will accelerate in the near-term and produce attractive returns for private equity buyers with access to capital.
Real Estate: Value in volatility
A window of opportunity is opening for real estate investors. In today’s dislocated macroeconomic environment, investors can purchase high-quality assets at attractive prices – often below replacement cost. In addition, BlackRock sees a mega force, shifting global demographics, as driving dispersion in real estate performance.
Two giant generational cohorts – the Baby Boomers and Millennials – are moving to new phases of life over the next several years, which will affect real estate trends. Millennials are growing their families, resulting in an increased demand for affordable housing stock and related necessity retail (e.g., supermarkets, strip mall complexes) and service providers (e.g., childcare centers).
At the same time, the aging of the world’s Baby Boomers as a “silver wave” will boost demand for destination retail and hospitality properties6. And as they age, these Baby Boomers will also increase the global need for medical office space. To harness this mega force successfully, investors need an acute understanding of the particular social, economic, and cultural trends in specific regions, countries, and micro-locations. Not all opportunities in this environment will be created equally.