Alternatives Investor Letter

Entering private markets.

By transformation, we mean a deliberate and significant shift.

In an environment where public equity valuations seem stretched, at least from a historical perspective, and rates have likely peaked, where should investors go to capitalize on the megatrends that are re-shaping the opportunity landscape?  We believe investors seeking diversification, thematic exposure, income, and higher returns are increasingly turning an eye towards private markets. The asset management industry has been rapidly evolving in response, with private capital poised to be one of the most powerful agents of transformation. With this in mind…

Here are three relevant themes for the remainder of 2024:

1) Real Assets demand is underpinned by long-term megatrends

While the noise has continued, for example amidst a heightened focus on politics following European elections in June and July that have seen shifts in governing power (e.g. France, UK), the policy foundation for infrastructure remains solid with the agenda focused on facilitating private capital investment in areas such as the energy transition and European economic independence. Consensus in the European market towards the need for energy security and digital capabilities help ensure that the policy environment will remain supportive and continue to evolve to address the needs of investors in the future. Against this backdrop, we continue to see value in the European midmarket for infrastructure. Key trends of demographics, digitalization, deglobalization, and decarbonization are also creating thematic and sectoral opportunities in Real Estate as the world adapts. Onshoring and nearshoring in the semi-conductor and green energy industries are trends to watch, with the potential to boost demand near expanding manufacturing hubs. This is complemented by short-term tailwinds as transports assets post-COVID recovery are brought back to market and as the next rate cutting cycle gets underway, helping to accelerate transaction volumes in the back half of 2024 and 2025. 

2) The importance of diversified origination sources is becoming more evident to investors 

Private capital is playing an increasingly important role in financial markets. At roughly $26 trillion, gross assets have nearly tripled in size, eclipsing the U.S. commercial banking industry in terms of gross asset value and capital raising. Private credit in particular is playing an ever-bigger role amidst traditional lender pullback and as innovations in structuring expand access for investors. Despite private credit’s extraordinary growth over the past several years, forecasts suggest there is a lot more room to run. Once adversarial relationships between asset managers and banks are rapidly evolving into partnerships, predominantly in direct lending but with some observable expansion into asset-based financing – a trend we expect to continue. The most innovative, adaptable, and forward-thinking firms are likely to emerge winners as the industry is forced to embrace the complexity, including data integration, structuring, and governance challenges, that accompany this attractive opportunity set. Further, asset managers with strong origination capabilities across multiple channels are expected to be best-placed to secure the access, quality, and diversification of investments that can meet the demands of sophisticated clients. At DWS, our partnership with the broader Deutsche Bank Group remains a key point of strength and differentiation in sourcing differentiated exposure for our clients.

If you have any questions, please reach out to your regional DWS Client Coverage leader below:

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