Agenda 2022 – Alternatives

Darragh Kennelly
Investment Analyst

Stephen Dickinson
Investment Analyst

2021 was another strong year for alternatives with record numbers of deals and an acceleration of longer-term structural trends leading to good returns for many sectors in the universe. The combination of low interest rates, diversification and lower correlation with traditional public markets continues to provide an attractive investment landscape for the asset class. Private equity, venture capital and private debt saw strong inflows throughout the year.

Investors continue to allocate to private equity, venture and private debt

Source: Pitchbook

Infrastructure 

Infrastructure continues to demonstrate its defensive characteristics with a focus on assets with long term contractual cashflows and often high barriers to entry continuing to attract more investors to the space. Long term tailwinds for some of the more attractive subsectors of infrastructure like renewable energy and digital infrastructure continue
to perform strongly. Key themes such as digitisation have provided significant opportunities in subsectors like wireless infrastructure, cell towers and 5G infrastructure, hyperscale and edge data centres and fibre networks. Decarbonisation will require infrastructure investment in opportunities across renewable power generation, grid stability and storage.

Decarbonisation will require infrastructure investment in opportunities across renewable power generation, grid stability and storage.

Private Debt

Growth in private debt continues to be fuelled by long-term secular trends – the disintermediation of bank lending channels due to regulatory developments in the wake of the GFC, sustained low interest rates on traditional fixed-income securities due to accommodative monetary policy and a broader pivot toward alternatives as an asset class with a low correlation to equities. Borrowers have taken advantage of the low rate environment and issued a record amount of debt. With a global loan market size of over one trillion and high dry powder for buyout and M&A activity, private debt offers ample investment opportunities.

Private debt continues to gain traction

Source: Pitchbook

Private Equity

The private equity market has staged an extraordinary comeback since the early shocks of the pandemic. The combination of demand for capital, strong returns, more moderate risk, and an opportunity to invest for the long term have created prime conditions for private equity. This is especially the case for sectors benefitting from transformative trends that have been amplified by COVID, such as digitisation. Across all sectors, tech-enabled companies that are embracing the shift towards a more automated, digitised and cleaner world are positioned to gain market share and are especially sought after.

Private equity exit activity broke all records in 2021

Source: Pitchbook

Tech-enabled companies that are embracing the shift towards a more automated, digitised and cleaner world are positioned to gain market share.