Partners Group publishes market outlook for 2018: 'Leveraging the winds of change'

Partners Group has published its 2018 Private Markets Navigator, which shares the firm's mid-term outlook and investment preferences for all private markets asset classes.

Introducing the report, Steffen Meister, Partner, Delegate of the Board of Directors, and Chairman of the Relative Value Committee at Partners Group, says: 'As the chances of a deviation from our base case macroeconomic outlook of low but steady growth continue to rise, we are focusing on sectors benefiting from the global megatrends that we believe will continue to generate attractive investment opportunities in the long term. These include digital transformation, new generation living and consumption, and the energy revolution.'

A short summary of the views presented in the 2018 Private Markets Navigator:

Private equity: in the past year, we have continued to see quality assets trade for near-record multiples, with hallmark EV/EBITDA exit multiples moving from 12x to 15x. One factor that has precipitated this shift is the entrance of new participants, with lower costs of capital, into the direct private equity investment market. For traditional private equity managers, peaky valuations and the likelihood of multiple contraction mean it is not enough to simply 'buy smart'. Instead, we focus on finding compelling companies in growth sectors where we can proactively create value.

Private real estate: high levels of dry powder and the search for yield continue to drive up prices in the real estate market. To find value, we continue to shift our investment focus towards special situations, defined as off-market transactions, where hidden potential can be unlocked. In terms of specific investment themes, we focus on assets benefiting from the two main trends that are shaping the real estate market: technological improvements generating demand for logistics space and new urbanization generating demand for modern offices and apartments.

Private debt: as leveraged loan volumes reach new heights, we are emphasizing our ability to remain flexible and offer one-stop-shop direct financing solutions complemented by active portfolio management for liquid loans. Demand for private debt financing remains strong on the back of the significant amounts invested by private equity funds and the growing number of private equity transactions that require financing. In terms of risk-return profiles, overall, given their more bespoke nature, private debt direct loans continue to offer an additional premium over liquid loans and generally better downside protection through tighter documentation.

Private infrastructure: institutional appetite for infrastructure investment shows no sign of flagging, fueling competition for assets and supporting high valuations, while also pushing down expected returns. This is due in part to lowering return thresholds, but also to more aggressive underwriting assumptions. In general, we believe higher levels of assumed risk are not adequately reflected in current return expectations, especially when interest rates in many economies appear to be rising. While this makes it a challenging investment environment, it is good for portfolio realizations. On the investment side, we prefer to build core assets or expand platforms in the renewable energy, communications, and energy infrastructure sectors, where we see transformative growth.

To download a copy of the report, please visit: www.partnersgroup.com/research