Partners Group's Key Predictions for 2023

Private Infrastructure

Todd Bright: Partner, Regional Head Private Infrastructure, Americas

We are in the early stages of a golden age for infrastructure investing with the confluence of several structural trends:

A global push towards net zero carbon by both the public and private sectors, which creates a massive need for new infrastructure to decarbonize the power generation, transportation, and industrial sectors.
A realization by industry and governments that a return to 'onshoring' of essential goods and services is necessary to address the risks posed by geopolitical instability and supply chain constraints.
The need for our infrastructure to be more resilient – to withstand the '500-year' weather events that seem to be occurring every year now.

At the same time, there are headwinds we have not seen for a very long time (e.g. higher interest rates, lower global growth), but an infrastructure strategy that focuses on opportunity sets with thematic tailwinds and where value creation comes from capex-driven organic growth can be successful in both up and down cycles.

Dmitriy Antropov: Managing Director, Co-Head Private Infrastructure Integrated

We expect 2023 to see a continuous increase in infrastructure secondary volume. With M&A markets decelerated and many institutions impacted by both numerator and denominator effects, as well as liquidity shortages, well capitalized players with established teams could see an opportunity comparable with the one seen in the Global Financial Crisis. Economic uncertainty would make transformative investing and applying an owner's mindset to the non-control investments more important than ever.

Private Equity

Anthony Shontz: Partner, Head Private Equity Integrated

In the second half of 2022, the secondary market experienced a large bid-ask spread, resulting in lower transaction volume. GPs will not materially adjust NAVs as of December, so discounts will not be eliminated by valuation adjustments. As private equity exits and distributions remain scarce in 2023, more institutions will look to the secondary market to manufacture liquidity and prospective sellers will accept discounts as the cost of creating this liquidity. 2023 will be a record volume year, with USD 75bn+ of LP interests trading at an average price of 85% of NAV.

Tatsuya Ochi: Head of Private Equity Directs Japan

I'm anticipating an increase of secondary buyout transactions in Japan towards 2023, considering the current challenging environment in public markets. Reflecting the uncertainty around the global economy following the ongoing situation in Ukraine and US interest rate hikes, Japan's IPO market has slowed down this year, limiting exit options for private equity funds active in this region that are aiming for their investment realization.

Private Real Estate

Joe Chien: Managing Director, Regional Head Private Real Estate, Asia

For 2023, I'm expecting increasingly attractive opportunities in the secondaries market, particularly traditional (LP-led) secondaries. This applies globally but is particularly relevant to Asia. It's picking up largely because everyone is looking to have more liquidity – either because they have near-term liquidity issues and are concerned about the outlook, or because they want to be ready and have 'dry powder' for the opportunities to come.

This part of the market has been relatively quiet over the past few years, but activity increased significantly in the second half of 2022, and I predict it will accelerate through 2023. Partners Group has long been a market leader in secondaries.

At the moment though, investment activity has slowed because everyone is waiting – we have to get used to the new interest rate environment and potentially prolonged higher rates of inflation. But Partners Group's experience with secondary and direct investing has helped us pinpoint the right assets and good entry points. We take a view on all the assets in the underlying funds and know the managers well – we continue to focus on mature and inflection funds.

Jessica Wichser: Global Co-Head Real Estate Asset Management

Just as adding amenities and upgrading the finishes of a property have been key drivers of value-add business plans in the past, investing capital to improve a building’s climate resilience and carbon footprint will be an essential part of value creation plans going forward. On the defense, responsible owners should account for the possibility that an extreme weather event may happen on their watch and should undertake cost-effective physical improvements to protect their buildings. Insurance is not a substitute for this. On the offense, following Covid, tenants are placing a much higher value on their health and safety when deciding where to spend their time, in addition to being sensitive to rising energy costs. Because sustainability credentials address these needs and concerns, pursuing them is no longer a tick-the-box exercise or a side project in a larger repositioning but an end goal in itself.

Portfolio Management

Adam Howarth: Partner, Regional Head Portfolio Management, Americas

Our bespoke custom solutions and evergreen funds will benefit from the opportunistic allocation to seize on market dislocations. Rising rates, FX movement and denominator effects have created a perfect storm to generate investment opportunities not readily available over the past decade. Investors who want to capitalize on these opportunities will look for innovative structures to overcome both the structural challenges of investing in private markets as well as the benefits of flexible allocation guidelines.

ESG & Sustainability

André Frei: Chairman of Sustainability

Sustainability leaders in private markets will continue to appreciate ESG as a crucial value-creation lever, because private markets firms with an active ownership approach are very well positioned to lead positive change.

At Partners Group, we have a vision of building better and more sustainable companies and assets, as articulated in our Sustainability Strategy and company's purpose of creating lasting positive impact for our stakeholders, including employees and the environment. For example, our Stakeholder Benefits Program, has continued to evolve as we build companies that employees desire to work for by re-investing substantially into their development and providing financial or wellbeing initiatives for staff.

Macro Environment

Tina Jessop: Senior Portfolio Strategist

The global economy is undergoing a fundamental change. The next decade will look materially different from the 2010s. Inflation will remain structurally higher and real growth will be more modest. Looking beyond 2023, where recession risk is pronounced, we anticipate the impact on long-term nominal growth, i.e. the sum of real growth plus inflation, to be mild or even positive. Yet, this change in the composition of growth will drive structurally higher interest rates and result in more volatile capital markets. As the broader economic outlook has become more uncertain, we are focusing on pockets of resilient growth in areas that benefit from transformative trends, like automation and digitization, as labor markets are tight and populations age, and energy efficiency, as energy supply is constrained, and the green energy transition is accelerated.

Client Solutions

Joanna Asfour: Managing Director, Senior Consultant Relations Specialist

In 2023, we foresee more UK DC clients assessing the merits of private markets, focusing on the benefits of increased financial returns and reduced volatility to fulfill the retirement goals of their beneficiaries. Collective action is powerful! We saw how the industry came together in 2022 with the Productive Finance Working Group to pull down the barriers to investing in less liquid assets – let’s build on that foundation and continue that great work in 2023. The democratization of private markets remains a key focus for us to enable thousands of UK beneficiaries to benefit from the returns private markets can generate.

Martina Glanzer: Client Relationship Manager

Discussions with LPs in the coming months will be mainly driven by how to position their portfolio and new commitments against a volatile environment as well as how to cope with regulation and reporting requirements from the SFDR and EU Taxonomy. As for investment allocation decisions, many LPs are faced with denominator effects but they must not miss out on attractive vintage years. In general, there is a need for active cash management and the possibility of making tactical allocations within private markets portfolios. Clients that invest through bespoke solutions have a higher flexibility to make these adjustments and invest into those segments of the market that offer higher relative value.

HR and Talent Acquisition

Kirsta Anderson: Chief People Officer

Most people are predicting that, due to the cost of living crisis and a softening labor market, power will shift back into the hands of employers – I disagree. Attrition and pressure on wages may relax marginally but will remain significantly higher than pre-pandemic levels. The pandemic forced many to re-evaluate what matters in life. That newfound priority on meaning and purpose is now combined with the increase in access to information and transparency that has evolved over the past decade – everything from knowing how much your colleagues earn to knowing that bullying leadership will no longer be accepted. For businesses to grow, they will need to bring sustainable work-life balance and a work environment that maximizes people’s potential up the priority list.

Operating Directors & Entrepreneurial Governance

Christian Unger: Partner, Head Operating Directors & Entrepreneurial Governance

Active ownership, meaning strategic and operational value creation from the board with engaged board members, will become even more important than before. While it is vital to build an understanding of industry themes, potential disruptors, and transformational opportunities, it is just as vital to assemble a board that will support portfolio companies in driving forward their strategy and enable them to focus on realizing their full potential. Entrepreneurial governance is, therefore, critical.

Technology

Patrik Bless: Head Business Applications

2023 will be a consolidation year for technology and strong market participants will use the opportunity to further advance their technology and process maturity by driving the adoption of cloud computing with a focus on (data) quality and resilience. In a world with accelerating geopolitical risk, heightened risk of targeted misinformation, shortening timeframes from detection of a vulnerability to its exploitation driven by cybercrime-as-a-service and, at the same time, increasingly diverse and strict regulation, market participants need to continue focusing on improving cyber hygiene and rigor in the execution of technology transformation projects. When implemented correctly, new cloud technologies can serve as a risk mitigant, help increase maturity and global business resilience, especially if the costs for these solutions remain under control.