Baar-Zug, 10 August 2011
Partners Group recommends investments in real assets and businesses
In its latest research report, Partners Group calls for a new classification into debtor economies dependent on external financing, and creditor countries with healthy balance sheets comprising economies in the Asia/Pacific, Latin America and core Europe regions. In this multi-polar world with a stagflation-type environment in parts of the advanced world, Partners Group is convinced that a more differentiated and adapted investment approach is required and recommends investing in real assets as well as in value companies in “tangible” (real) sectors that offer stable yields and inherent growth opportunities.
Private Equity: target defensive companies with strong cash flows
- Despite rebounding investment and buoyant exit activity, Partners Group is still convinced that private equity volumes should eventually adapt and entry prices should be priced at lower levels, in line with still-fragile economic conditions.
- A global "vertical depth" approach that drills down into the sub-sector level, taking into account valuations, leverage and relative industry positioning to identify defensive, cash-generating companies with strong revenue visibility is the right tactic for identifying sweet spots.
- Partners Group continues to see relative value in mid-sized companies that are attractively priced as valuations in the large-cap space remain stretched. With regards to Asia and the emerging markets, Partners Group retains a positive outlook on family-backed small- and medium-sized businesses with a special emphasis on Latin America due to attractive valuations and growing demand for private equity.
Private Real Estate: time to invest outside the core space
- Direct non-core investment opportunities in Tier 2 and 3 cities which still fail to attract global capital flows continue to offer compelling risk-adjusted returns.
- Core investing offers lower relative value due to the high price levels of stabilized assets and the lack of strong fundamentals.
- Fundamentals remain strong in many emerging markets. Partners Group continues to focus on markets where GDP and consumption growth are strong, and where the current supply pipelines are considered insufficient to satisfy the increasing demand for quality real estate.
- The secondary market continues to offer attractive returns for buyers with proprietary sourcing channels and strong execution capabilities. New opportunities arise through secondary directs in which existing direct investors seek to exit positions at a discount.
Private Infrastructure: funding gap and high demand
- Extremely high global demand for infrastructure assets as well as weak financing capacities by governments leave a funding gap for private capital. In this stagflation-type scenario we like yielding, brownfield infrastructure assets with inflation-linked revenues in Europe, North America and Australia.
- Multiple opportunities abound in the energy sector, spurred by the ongoing deregulation and privatization in Europe and the expansion of gas transmission infrastructure in the USA. Additionally, government promotion of renewable energy creates additional opportunities.
- The rapid transformation of emerging market economies and societies coupled with high GDP growth support greenfield asset creation strategies in Asia and Latin America.
Private Debt: volumes expected to increase
- While the high yield space is booming, mezzanine volumes have remained disappointingly low (first six months of 2011: EUR 270 million).
- Going forward, deal flow is expected to increase on the back of rising M&A activity, expiring investment periods and sponsors looking for exits. Refinancing needs on the back of the upcoming wall of maturing leveraged loans indicate a strong deal flow potential in the years to come.
- The mid-cap space is still the sweet spot while pockets of investments in the large-cap space emerge more opportunistically.
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