Navigating Private Markets – September 2022 Release

September 2022

The post COVID-19 global economic rebound and the Ukraine war have triggered a sharp increase in prices, wages, and energy costs that are pushing inflation rates back up to levels not seen for decades. We have been ushered into a new macroeconomic paradigm characterized by permanently higher inflation and interest rates.

Investors need, thus, to consider increasing their portfolio allocation to assets with inflation-hedging attributes. In this regard, both real estate and infrastructure investments have performed strongly1 in high-inflation environments thanks to revenue streams usually indexed to inflation, their ability to contain increases in costs and, thus, benefit from operating leverage, and their long-term fixed-rate financing structure, which mitigates the increase in financing costs.
There is a little secret in private asset investing that amateurs do not seem to fully appreciate. The challenge in private assets is not about getting your money back. Actually, the challenge is about staying invested as you will indeed get your money back unlike any traditional asset class, where you can stay fully invested ad infinitum.1

Private investment exposures are driven by commitments, actual drawdowns, and underlying fund performance. As investors just control the size and timing of their commitments, they need to carefully consider what commitment strategy best serves their strategic purposes and is best aligned with their risk profile.