Baar-Zug, 28 January 2014
Partners Group publishes Private Markets Navigator H1 2014: assetflation losing steam / create value at individual asset level
Boosted by monetary policy experiments in the advanced world, capital markets continue to flourish with “assetflation” reaching new highs. Valuations have disconnected from fundamentals as earnings in most of the advanced world are stalling. Assetflation is drawing to an end. Partners Group expects asset prices to plateau at high levels with increased volatility as the geyser of liquidity prevents a larger correction. On the economics side, the firm’s long-held view of sluggish GDP growth prevails. While economic activity in the US and Europe is slowly reviving, growth rates should remain below trend. Partners Group remains convinced that value creation in the individual assets at the micro level is critical.
Partners Group’s Private Markets Navigator research report provides investors with the latest economic and market information that impacts the global private markets. In the individual private markets asset classes, Partners Group believes value creation potential can be found in the following segments:
The middle market still offers the most attractive opportunities - it is crucial to have a differentiated sourcing angle and a deep local network to find good companies at adequate valuations. Given the challenging macroeconomic environment, the firm’s focus lies on businesses that can be transformed and where value can be added. Discounts in the secondaries space have closed and Partners Group overweights inflection assets, which have not yet seen the fruits of operational improvement plans, as well as more complex deal situations.
Private real estate:
Partners Group focuses on building or redeveloping properties to suit end users in local markets that stand to benefit from economic growth, favorable demographic trends or appealing real estate fundamentals. In Europe, dominant retail properties in second-tier locations provide attractive repositioning opportunities. In the US, the firm increasingly focuses on the needs of end users in high growth markets, particularly those experiencing increases in technology and energy-related tenant demand. In the Asia-Pacific region, positive sentiment and aggressive acquisitions have provided opportunities to dispose of assets at attractive pricing, while asset management and repositioning initiatives should enhance value and maximize return potential.
Appetite for the asset class remains strong, but valuations are also plateauing for core infrastructure assets owing to rising real rates. Attractive opportunities continue to exist in developed and emerging markets and in sectors where investors can capture attractively priced greenfield premiums, excess returns through value creation with bolt-on/platform growth initiatives of uniquely positioned assets and incremental returns from operational improvements.
Debt markets remain hot with senior debt and high yield issuance surging and leverage levels rising driven for example by record new CLO issuance in the US. Partners Group continues to focus on creating value by arranging and underwriting transactions in the mid cap segment, where CLOs cannot play and high yield is not available. Understanding an asset in depth, from identifying revenue drivers to assessing what level of leverage a target company can absorb, and being disciplined and selective in investing is crucial in this environment.
Should you wish to receive a print copy of the full report, please contact Milevka Grceva (milevka.grceva(at)partnersgroup.com).