Goldman Sachs Asset Management predicts growth in the private equity market next year.
They anticipate an increased focus on private credit, real estate, and other private investments.
The company forecasts the rise of disruptive technologies such as AI (Artificial Intelligence), software, healthcare, and bio.
Goldman Sachs Asset Management announced these points in its ‘2024 Investment Outlook’ on the 27th.
Stuart Rigley, who oversees Goldman Sachs’ firmwide Alternative Capital Markets and Strategy Group in the Asia Pacific region, emphasized the importance of active strategies for alternative investments in helping investors successfully navigate changes in the new year. Such methods, he mentioned, played a vital role in diversification, risk management, and realizing alpha.
He also added that he expects sustainability and disruptive trends, driven by technological innovations such as Artificial Intelligence (AI), to lead to a new world of investment.
Private Equity Market Growth
The major investment outlook for 2024 identified by Goldman Sachs Asset Management includes five points. Firstly, there is the need for inflation risk diversification, increased returns, and investment diversification due to the growth of the private equity market.
They expect a preference for private investment. Recently, investors have put more than $10 trillion into private equity, private credit, real estate, and infrastructure, and both LPs (Limited Partners) and GPs (General Partners) are increasingly utilizing the secondary market.
Rigley mentioned that Limited Partners (LPs) might consider selling off existing assets to align with market trends, mainly due to their portfolio’s persistent high interest rates and the emergence of new growth industries. He also noted that during such times, General Partners (GPs) could offer LPs liquidity and the chance to retain essential assets for an extended duration through secondary funds.
Furthermore, he added that LPs and GPs in need of liquidity but desiring to maintain their portfolio or assets for an extended period were exploring secondary investment solutions such as preferred equity.
Importance of Maintaining Balance Between Public and Private Markets
Stephanie Hui, who serves as Goldman Sachs Asset Management’s Head of Private Equity in Asia and global co-head of Growth Equity for the Asia-Pacific region, emphasized that the importance of the public market had not diminished. She noted that a proper balance between the private and public markets was crucial.
Hui further stated that, given the current high level of uncertainty, the outlook for the private equity market had improved compared to the past. She highlighted the importance of investors taking into consideration factors such as economic downturns, political and military conflicts, inflation, interest rate hikes, and other macroeconomic and geopolitical trends.
They foresee investment opportunities in the private credit and real estate markets.
Investment Opportunities in Private Credit and Real Estate
They anticipate various investment opportunities in the private credit market next year due to high benchmark interest rates, attractive spreads, and continuous capital inflows.
“For LPs, increasing the allocation to the private credit sector is expected to boost the AUM (Assets Under Management) and enable fundraising for larger transactions.
Rigley noted that the proportion of private credit had increased, primarily in response to recent turmoil and volatility in the syndicated market. He mentioned that there had been a growing demand for relatively accessible financial instruments like Delayed Draw Term Loans (DDTLs) and Payment In Kind (PIK) notes in the private credit market. Rigley also emphasized that the value of deal-sourcing capabilities and pipelines would rise as managers focused on effectively allocating investment capital.
Rigley mentioned that the market turmoil was impacting the market value of properties. Still, he emphasized that investors who allocated and managed assets while considering factors such as technological innovation, demographic changes, and sustainability would ultimately enjoy benefits.
Anticipation of Disruptive Technologies in AI, Software, Healthcare, and Bio
They also predict the rise of disruptive technologies such as AI, software, healthcare, and bio.
Large pharmaceutical and biotech companies are outsourcing some of their core businesses, such as R&D, clinical trial management and operations, pharmaceutical manufacturing, medical and regulatory-related tasks, market access, and communications, reaping significant benefits.
Hui noted that the structural growth of the pharmaceutical outsourcing industry is expected to persist as the pharmaceutical and biotech industries shift from a fixed cost structure to a variable cost structure. She added that this ongoing growth would present attractive opportunities for outsourcing service providers.
Healthcare service providers need solutions for wage adjustments, labor shortages, supply chain inflation, consumer demand downturns, and the accumulation of clinical fatigue. Investors have indiscriminately sold off biotech companies in the public market, causing valuations to fall to levels seen 15 years ago.
Growth in AI and Software Market
Moreover, as the workload of AI is expected to increase by 2025, the demand for data analysis and management is expected to grow, further strengthening the software and cloud market.
Hui pointed out that the emergence of generative AI had introduced new cyber opportunities and threats. She emphasized that as criminals adopted AI to alter the nature of their attacks and become more sophisticated, unknown threat vectors emerged. Consequently, the importance of data governance, Security Information and Event Management (SIEM) technology, and the information they collected increased. Hui added that suppliers with scale, vast amounts of data for training AI models, and a robust platform had a relative advantage and were likely to benefit disproportionately through cross-selling and upselling.
She further stated that the expansion of data centers to support AI workloads was in its early stages. Cloud service providers have aggressively increased capital expenditures, which they expect to continue until 2026. Hui anticipated that while only a few industry leaders had garnered market attention in the current year, the following year would likely see a broader range of suppliers benefiting as market attention shifted from the “training” phase to the “inference” phase in AI development.
Sustainability Investments
They predict increased investment opportunities related to sustainability in the public and private markets.
Rigley noted that global investors were directing private capital toward innovative solutions for water-related resource efficiency and climate change mitigation. He also mentioned that investment opportunities would continue to arise in the software, data, and smart device sectors associated with the transition to sustainable energy practices.
Additionally, advisors have recommended that investors closely monitor potential risk triggers, such as the U.S. Federal Reserve’s (Fed) first hint of a rate cut. Goldman Sachs Asset Management suggested that an overreaction to market sentiment might signal a need to switch to long-term risk allocation if the Fed returned to an easing monetary policy in the middle of the following year.
By. Jeong Seon Eun
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