Outlook 2023, Private assets: three areas of focus in challenging times
“In 2023, private asset investors face a complex mix of challenges and risks,” says Dr. Nils Rode, Chief Investment Officer at Schroders.
The likelihood of a prolonged recession is significant. Inflation is high. Interest rates are rising, while overall debt is elevated. The war in Ukraine continues, as does the resultant energy crisis. Even if these factors disappeared overnight, ongoing issues like social inequality and populism remain.
Nevertheless, private assets are long-term in nature. It’s more appropriate that investors assess the medium-to long-term outlook before making any decisions. Over this longer timeframe, numerous durable, long-term trends mean we remain optimistic.
There are a few potential reasons why someone might consider investing in private assets:
Potential for higher returns: Private assets, such as private equity, venture capital, and real estate, can potentially offer higher returns compared to publicly traded assets, such as stocks and bonds. This is because private assets often involve a greater level of risk and uncertainty, and investors may be willing to accept a higher potential return in exchange for that risk.
Diversification: Investing in private assets can also help diversify an investment portfolio, as the performance of private assets may not always be correlated with the performance of publicly traded assets. This can potentially help manage risk and increase the overall stability of an investment portfolio.
Control and influence: Investing in private assets can also provide investors with more control and influence over the companies in which they invest. For example, an investor in a privately held company may have a say in the company's management and strategic direction.
It's important to note that investing in private assets carries its own set of risks and challenges. Private assets are often less liquid and harder to value than publicly traded assets, and they may be subject to additional regulatory requirements. It's important to carefully consider the potential risks and rewards of investing in private assets before making any investment decisions.
