Investors need to lean into growth more than they have in the past, particularly in a risk-on environment such as this one, according to private markets solution provider Hamilton Lane.
In its market outlook, it said growth versus value was a theme that weaved throughout this year’s overview.
“In the private markets, buyout has been historically viewed as ‘value’ and venture as ‘growth’,” it said.
“Tilting your portfolio one way or the other was generally more of a function of your access to top-tier venture than of your view of growth versus value. That dynamic has changed.”
It now viewed Western Europe as the new venture and the top-performing geography.
“We tend to think about Western Europe as similar to the US, just a little smaller, but that characterization overlooks some important attributes that distinguish the markets,” it said.
“The investable universe is constrained, particularly because many/most of the key managers limit their fund sizes.
“Doesn’t that sound like venture, where your allocation is generally a function of your access to the best managers and those best managers are where you generate your return? This might require a re-think of how you invest in Europe (or require you to ignore us).”
This year’s decline in investment opportunities reflected the market shutting down last year, more than any other fundamental change.
“Certain trends have been evident for years now, and portfolios will increasingly tilt to more direct deals, with more of a growth orientation, and with increased real asset exposure,” the firm said.
Credit remained a place where the return available in the private markets compared to that of the public markets was too great to ignore.
“We remain wary of distressed debt, at least for the next year, because there is too much government support to believe opportunities will be available in scale,” the firm said.
It also said secondary investments and infrastructure were both appealing and the latter was buoyed by strong income yields, downside protection and a supportive regulatory environment.
“Big data, digitisation and the electrification of a green economy will continue to drive investment in growth sectors such as towers, data centres, fibre and renewable energy,” it said.
“Real estate will post strong returns in 2021, generated by increasing cash yields fuelled by historically cheap debt.
“The dispersion of total returns across property types will be wide, however. Distressed sellers and recap opportunities will emerge across most property types.”