FORECAST

The outlook for private market funds in 2023 and 2027

A return to a world of inflation and interest rates will change recent investment assumptions. What space is there for private markets in this environment?

Words STEPHEN EVANS

LIZE GRIFFITHS Partner, real estate leader, Deloitte Luxembourg

“We will see institutional investors increasing their investments in this space.”

GIULIANO BIDOLI Director, tax, BC Partners and Luxembourg Private Equity and Venture Capital Association (LPEA) executive committee member. “Looking at private markets in 2023, we think we will see institutional investors increasing their investments in this space, even given the current environment of rising inflation,” said Bidoli. The main motivation will be the ongoing desire for diversification of investment in the search for returns in a variety of sectors and asset classes.

Regarding managing this growth, he believes that “ensuring cost control is a particular challenge for next year and beyond.” Relying exclusively on manual processes is not an option, not least because more effort is required to analyse performance, costs and energy use in portfolio companies. “It will require an upgrade in digital technology, which will speed the collection and processing of the data needed to inform decision making,” Bidoli said.

The government could help. “A change that many are calling for in the industry is a reduction in the minimum investable amount required by individuals to access alternative funds. Other countries have done this.” Geopolitical, social and economic uncertainties continue to filter through to the private market fund industry, which is working to convert these challenges into opportunities. “Opportunities that could benefit the entire value chain include impact strategies to maximise value creation at the asset level, improved efficiency through technology, and transformation at asset service level,” said Griffiths.

She notes that higher net-worth individual investors are exploring private market fund investments to diversify their portfolios. “Interest in the shift toward the democratisation of private assets is growing, giving exposure to longer-term investments and benefiting from the expected outperformance of this market,” Griffiths said.

Deloitte Insights’ 2023 commercial real estate outlook survey found the following priorities of 450 chief financial officers of major commercial real estate owners and investors: strategic portfolio execution; prioritising ESG to meet regulatory and stakeholder demands; understanding recent and pending changes to structures and operations; rethinking talent approaches; and using technology to innovate and improve efficiency.

“The shift toward the democratisation of private assets is growing.”