We asked experts in private markets for their 2024 predictions. Here's what they said
We asked experts in private markets for their 2024 predictions. Here's what they said
Predictions from experts and practitioners in private markets on what will happen in 2024
This week, we have a special edition of the AGM Weekly newsletter. A number of the industry’s experts share their views on private markets in 2024, leaving us with the gift of their wisdom during the holiday season.
Happy holidays to everyone, and I hope you enjoy reading these thoughtful and insightful predictions for 2024.
Thanks to all the experts who took the time to participate and contribute their thoughts and for all of your work in continuing to push private markets forward.
A few of my predictions below to kick things off.
My predictions for Private Markets in 2024
A big focus in 2024 for GPs, LPs, and VCs will be either implementing or investing into post-investment back office private markets solutions focused on data and analytics. 2023 saw the rapid growth of a number of companies that can shape the future of private markets with more transparent and real-time data and information. These companies will fuel the next wave of innovation in private markets as solutions that analyze, structure, and distribute data will become mission-critical in helping funds and investors better navigate private markets — and ultimately circle back around to distribution, enabling more investors, at smaller minimum investments, to participate while giving funds more efficient and cost-effective ways to handle the administrative burden.
While far from a groundbreaking prediction, I believe 2024 will see at least one large alternative asset manager go public. CVC has been mulling an IPO for some time, and recent news of General Atlantic considering a public listing should come as no surprise given their size and scale. Alternative asset managers who have managed to build robust multi-strategy platforms are in pole position to both continue to grow their AUM and perform well in public markets (if they have the size and scale). News of more alternative asset managers going public will only further the notion that alts are part of the mainstream financial services world.
A large traditional asset manager will acquire a marquee alternative asset manager. The FT reported about the possible acquisition of $83B AUM Warburg Pincus by $8.6T AUM BlackRock. While this groundbreaking tie-up failed to materialize, I anticipate that we will see a traditional asset manager acquire a brand-name alternative asset manager. Traditional asset managers understand that their main business is under fee pressure, and alternatives would diversify both their revenues and offerings to the wealth channel.
Private credit will continue to be among the most popular strategies from a fundraising perspective, particularly with the private wealth channel. And for good reason. Many expect private credit to perform well (including a few experts below) due to structural changes from the challenges that Wall Street banks and regional banks have faced over the past year. But it will be the 2024 vintage in venture capital that will be an outperformer — even if many funds struggle to raise in a fundraising environment that has appeared to be more tepid towards venture.
Yieldstreet’s acquisition of Cadre foreshadows more consolidation in the alts investment platform space. Investment platforms with a single asset class or strategy focus will consolidate into a larger platform that is multi-strategy. This thinking follows the trend of the same occurring with large, multi-strategy alternative asset managers acquiring specialized managers to boost AUM and enhance their menu of offerings to LPs. These types of acquisitions can serve to boost valuation multiples whether it’s a tech enabled investment platform or an alternative asset manager as multi-strategy managers command higher valuations than single-strategy managers.
It’s also noteworthy that two of the respondents (Stephanie Drescher from Apollo and Robert Picard from Hightower) cited the number 50%. That’s the number to which some university endowments and billionaires have dialed their private markets allocations, according to Robert. It’s also the number that Stephanie believes individual investors could achieve for their alts exposure within the coming years based on Apollo’s definition of alternatives (“an alternative to publicly traded stocks and bonds, existing from IG credit to equity”). Even if alternatives exposure for the wealth channel falls short of 50% in the coming years, the space will still see inflows of trillions of dollars from the increasingly important wealth and individual channels.
The Asset Manager Perspective
Stephanie Drescher, Partner, Chief Client & Product Development Officer and Management Committee Member, Apollo Global Management
In 2024, we believe that alternatives will continue to see increased adoption among wealth investors as a means of alpha generation amid higher rates, high inflation, volatile and correlated public markets, and headwinds around the traditional 60/40 portfolio. We believe that alternatives are defined as simply an alternative to publicly traded stocks and bonds, existing from IG credit to equity. As education around the role that alts can play in portfolios continues to increase, we expect alts strategies to resonate with investors and their advisors.
Continued investment in product innovation, technology, and education to create bespoke products tailored for the wealth channel with customized structures and access points as well as varying levels of liquidity will also be a key theme in 2024. We believe that managers who are investing for the long-term by developing a suite of offerings across asset classes will see stronger AUM growth vs. those focusing on single products.
We continue to believe that we are on a trajectory where alternatives in our definition could make up 50% of individuals’ portfolios in the next five years, driven by momentum in areas such as fixed income replacement, IG private credit, equity replacement, and real assets, not just higher-octane private equity and venture offerings that have historically been associated with alternatives.
Finally, as many expect continued volatility ahead in 2024, we may see greater dispersion in performance among managers and in certain asset classes like credit where those favoring senior secured, downside-protected portfolios will be better positioned to achieve outperformance.
🎥 You can watch Stephanie decode the wealth channel at the Future Proof wealth conference. Watch here.
Lawrence Calcano, Chairman & CEO, iCapital
The findings from our 2023 iCapital Financial Advisor Survey suggest continued growth in the adoption of alternative investments. 60% of advisors who responded indicated they expect private markets to outperform public markets in the coming year. When asked about future intentions, 95% said they plan to maintain or increase allocations to alternative investments and 79% cited diversification as the top benefit.
While there is still uncertainty in the markets and rates remain elevated, we believe 2024 is likely to be a year that presents a variety of investment opportunities across multiple asset classes and strategies. In our view, there is a strong likelihood that the Fed will decrease rates in the middle to second half of 2024, and that could be a positive catalyst.
In terms of areas to focus, our top 2024 investment ideas include growth and venture equity, private credit and real estate debt. Growth equity and venture capital are at the forefront of investing in new and growing technologies (e.g., AI) and which, at this time, seem to have an attractive entry point in terms of valuations, while offering the potential for enhanced returns. History suggests that vintages raised in slower or transitioning economic climates have done well. In private credit, direct lenders have benefited from raised rates with greater absolute levels of yields and improved risk-adjusted return. Real estate debt managers have stepped in to fill the gap created by the pullback in lending from regional banks, while taking advantage of an interest rate environment that is providing very attractive returns.For those with little or no exposure to the asset class, adding an allocation to real estate debt may offer further diversification and the potential for increased income.
But as advisors allocate a greater percentage of client assets to alternatives, they need to be able to operate in that hybrid environment as efficiently as they have when constructing "60/40" portfolios. In effect they need an operating system to be able to manage the education, compliance and all the pre-commitment processes, as well as the transaction or subscription processing and all the after-investment activities. Technology that facilitates this end-to-end user experience is becoming increasingly necessary to ensure a great experience for both the advisor and client. In the end, creating a great advisor and client experience is critical for the continued growth and use of alternatives, which we think will help clients have successful investing outcomes.
🎥 You can listen to Lawrence’s podcast here on Alt Goes Mainstream and to our Monthly Alts Pulse show to hear more about how iCapital is building the core infrastructure for the wealth management community to access alternative investments.
Shannon Saccocia, CIO - Private Wealth, Neuberger Berman
As believers of a well-diversified portfolio, we view 2024 as being no different than 2023 with respect to incorporating Private Markets into our clients’ asset allocations, where suitable. Private clients are increasingly seeking out opportunities that will provide better risk adjusted returns and diversified income streams beyond traditional asset classes. Those investors with the ability to participate in private markets will be perhaps better positioned to achieve their investment goals in the long-term.
What is unique to 2024 is the opportunity set. We see fundraising slowing down in conjunction with exit opportunities in the markets. We believe here that capital providers will be rewarded in less traditional fund structures like secondaries, co-investments and private credit solutions. Similarly, we believe the increasing cost of capital will lead to dispersion in the real estate market where we believe seasoned investors will prevail amidst the volatility, creating opportunities in the real estate credit markets.
🎙You can listen to Shannon discuss the changing role of alternatives in client portfolios. Listen here.
Dave Donahoo, Head of U.S. Wealth Management Alternatives, Franklin Templeton
Alternatives use in global wealth channels continues to rise: We hear from our largest distribution partners every day that alternatives will continue to grow in use, and we are fortunate to see that trend directly. Alternatives are becoming less ‘alternative’ and more of a ‘core’ allocation, grouped alongside their public equivalents in equity, debt, and real assets. From a distribution perspective, the most successful firms will be those who invest in education and resources to help clients and advisors understand ‘when’ ‘how’ and ‘why’ to use alternatives.
Continued expansion of Private Credit: Between the banking crisis, concerns about raising rates, and innovation on the GP side, 2023 was a banner year for the growth of private credit across institutional and individual investor channels. We believe that expansion continues into 2024 and likely broadens beyond traditional direct lending into areas like asset backed financing and real estate private debt.
Secondaries and Co-Invest Solutions stay attractive: Slower primary realizations and a continued need for LP liquidity have contributed to a robust discount environment – we expect that to persist. Co-investment programs offered by GPs, both in fund format and standalone, will rise in attractiveness for wealth channel investors looking for access to top performing PE managers not directly available to them.
Real Estate starts a comeback: Flows into equity real estate strategies troughed in 2023 due to rising rates and concerns around certain sectors, most notably traditional office. GPs who have avoided challenged property types, have been responsible with leverage, have purchased properties at the right cap rates and have been opportunistic in where they deploy capital in the cap structure will start to differentiate themselves and expand fundraising – buoyed further if the Fed becomes more accommodative.
Anastasia di Carlo, Principal - Head of Italy, Hamilton Lane
It’s clear that the past year was a very challenging fundraising environment and I don’t think we’ll see that do a full 180 next year, but we’re seeing more confidence in the market. GPs will have to get used to this ‘new normal’ of LP expectations and continue delivering performance. Looking more broadly, this year has shown that investors are leaning into private markets and that sentiment is likely to continue growing next year, particularly with investors that have had historically low allocations to private markets.
The Wealth Management Perspective
Robert Picard, Head of Alternative Investments, Hightower Advisors
As we approach 2024, two numbers stand out: 5% and 50%. The average billionaire and university endowment have over 50% allocated to private markets, while the average individual investor has only 5% allocated. We anticipate this gap to narrow in 2024 and beyond. This is due to better risk adjusted returns for portfolios with higher allocations to alternative investments.
Private Market Fund Managers are highlighting significant investment opportunities in the Private Credit space due to shifts in lending away from community banks and ongoing rising rates. Private credit funds are leveraging these shifts to generate better risk-adjusted returns than traditional public fixed income. We continue to focus on asset-based lending (ABL) strategies such as healthcare royalties, aircraft leasing, and similar credit opportunities that benefit in an inflationary environment.
Additionally, we are targeting long-term themes with favorable tailwinds, including domestic opportunities related to de-globalization and repatriation of supply chain manufacturing towards the US. This has led to investments in domestic manufacturing, industrial real estate logistics, and opportunities within the automation and robotics sectors. Cybersecurity is another technology-related theme expected to benefit from ongoing investment. As we prepare for 2024, it is always a challenge to time the markets, but we believe that the next several vintages, 2024 and 2025, will be advantageous for private market investors.
🎙You can listen to Robert’s podcast here on Alt Goes Mainstream to learn more about how a private markets expert approaches alts at a (now) $130B wealth management platform. Listen here.
Haig Ariyan, CEO, Arax Investment Partners
The need for Alternative investments in client portfolios will become more and more apparent in ’24. As interest rates continue to find a “normalized” level, long market volatility and direction will become harder to harness. Simultaneously, the continued decline in the number of public companies has limited investors' access to the broader global economy. Fortunately, access for investors to private assets has become more available. However, the leaders in providing the multi-trillion-dollar retail client space with Alts will begin to separate themselves from the newcomers. FAs and clients should be particularly sensitive to partners they choose to access sophisticated, and potentially illiquid solutions.
In terms of private investing focus, I believe PE firms will continue to focus on smaller companies, as we are doing at Arax, and private credit will continue to present ample opportunities. The banking issues of the first half of ’23, have helped to solidify even further the longevity and overall footprint of private credit.
Although consolidation in the independent wealth management profession will continue, the trend towards independence and the establishment of new RIAs and hybrids will include a greater focus on the proper utilization of Alternative Investment Solutions. This trend will not only continue in the coming year, but it will also likely accelerate and strengthen for the foreseeable future.
🎙You can listen to Haig’s podcast here on Alt Goes Mainstream to hear a wealth management industry titan share his thoughts on the private equity opportunity in wealth management and why the intersection of wealth and alts is one of the biggest trends in private markets. Listen here.
Cameron Dawson, CIO, NewEdge Wealth
2023 was a wake up call year for many investors in alternative assets, realizing that the macro backdrop that supported many alternative strategies in recent decades could change in an environment where interest rates are rising, instead of steadily falling over the last 40 years.
Though long term interest rates ended 2023 effectively where they began (after a lot of volatility), we expect strong managers to continue to maintain a keen eye on controlling and structuring leverage. We have focused our exposures in 2024 to those managers who excel at operational value add instead of pure financial engineering.
We think that the Fed signaling easier policy ahead could revive animal spirits and thaw capital markets activity, breathing new life into M&A and IPOs markets, which have been frozen for the past two years. This could create exciting opportunities for private markets investors.
2023 was also the year that never was for distressed investing. We are uncertain that 2024 will present large opportunities for distressed investing, as these opportunities will be highly dependent upon the path of U.S. economic growth. Instead of trying to anticipate when these distress opportunities will present themselves, we focus on managers with a strong track record of investing through challenging macro environments.
We see opportunities in real assets and infrastructure, but are approaching the space with a high degree of selectivity, all driven by a clear investment thesis (instead of using broad infrastructure plays).
We stepped into the fray in 2023 with venture, observing the opportunity created by most investors pulling away from the space, and now the excitement around Artificial Intelligence has reinvigorated venture capital investing in 2024.
Lastly, we look to hedge funds that understand the nuances and needs of private wealth investors, versus institutional investors, to make strides in providing diversifying, compounding, and efficient solutions to tax sensitive wealth investors.
Bill Orum, CIO, Capricorn Investment Group
The re-rating that occurred over the last 2 years of many public and private climate oriented businesses - due to rates, policy, and sentiment - will reverse as investors refocus on the long term secular demand, fundamental technical progress achieved, and ultimately these investors will benefit from more reasonable entry prices. While it has been a painful adjustment, it was a much needed one. The next 12-24 months will be a period in which the new normal for valuations, rates, and technological solutions set the foundation for a much broader community of investors to invest in the space long term.
Investors will also start to appreciate many forms of exposure they can access in areas related to climate. To date, the space has predominantly been oriented toward venture capital and infrastructure with an equity orientation. As the opportunity set expands and matures, and as rates allow for attractive return for risk in credit, we will see much more diversified expressions of climate investing and more idiosyncratic returns across the full asset class spectrum.
The ripple effects from the ESG backlash will ultimately have a positive outcome in helping asset owners differentiate between investments that reflect virtue signaling or marketing (with little to no real world impact potential) and investments offering the prospect of commercial rates of return due to their intrinsic role in addressing fundamental challenges.
This expectation is independent of political outcomes in the US or corporate and institutional investor net zero proclamations. The last few years have illustrated that while seemingly accommodative and supportive backdrops, neither are sufficient for accelerating decarbonization pathways to the degree required. We will continue to see great entrepreneurs and talented investors gravitate to these areas because of the scale of opportunity, clear role for innovation and private capital, and systemic importance of climate change to the global economy.
🎙You can listen to Bill’s podcast on Alt Goes Mainstream to learn more about how a sustainable investments pioneer has proven that doing well and doing good don’t have to be mutually exclusive. Listen here.
Phil Huber, CIO, Savant Wealth
Greater fluency: Financial advisors and other investment professionals serving the wealth management community will continue to learn how to “speak alts” more effectively. Educational initiatives like UniFi by CAIA™ are moving the needle in this regard, providing the resources and training necessary to help RIAs translate and contextualize alternatives, all through the north star of delivering better client outcomes.
Right-sized allocations: With increased fluency comes greater confidence and conviction. Allocations that today represent low single digit weightings in a portfolio will become larger and more strategic components of a diversified portfolio. This dovetails with the superior breadth of quality products in the marketplace today relative to just a few years ago. The days of de minimis targets to alternatives as an exercise in “checking off the box” are (hopefully) soon to be over.
Perpetual motion: Fund vehicles that are perpetual by design — interval funds, tender funds, private REITs, and private BDCs — are continuing to gain favor with RIAs. This owes to several factors, including the increased weight to alternatives in advisor-driven portfolios, the administrative convenience and enhanced investor protections these evergreen wrappers offer, recent fund launches by well-established and high-quality firms, immediate capital deployment, lower investment minimums, and more frequent opportunities for liquidity.
Perpetual private equity funds in particular are likely to see the most relative growth in 2024 and beyond, assuming the asset class follows the precedents set by private debt and private real estate/real assets. However, discerning CIOs and allocators will be increasingly seeking differentiated solutions that are less reliant upon mega buyout beta and place greater emphasis on some combination of small buyouts, early-stage venture, and/or specialty secondaries.
🎙 You can listen to Phil’s podcast on Alt Goes Mainstream as he talks about how LPs can build a strategy for investing in private markets. Listen here.
Nicolas von der Schulenberg, Managing Director, Portfolio Advisors
Institutional fundraising market will remain challenging in 2024.
Too many funds (4,000) seeking too much money ($1.4 trillion). Both of these figures are all time highs.
At the same time, distributions are currently very low, so that investors have only limited amounts of capital to allocate to new funds.
The result is a sharpened flight to quality – only the best in class fund managers are able to raise capital in the current market.
Lack of liquidity for limited partners is leading many investors to sell parts of their portfolio on the Secondary market, creating a supply / demand dynamic that favours Secondary buyers. Top tier Buyout funds that were sold at par or for a premium a few years ago are being sold for material discounts today. We expect for 2024 to be an attractive year for Secondaries, consistent with 2023.
2024 will be the year for the “other shoe to drop” on Venture / Growth valuations.
Despite cost cutting measures implemented in 2022 and 2023, cash is starting to run out at some start-ups, leading to new financing rounds. In many cases these are “down rounds” which reflect the current market valuation of these companies. We expect for many more start-ups to seek additional financing during 2024, which will provide more clarity on valuations.
📝 You can read some of Nicolas’ thoughts on private markets and GP staking from his recent speaking engagement at SuperInvestor in Zurich here.
The Alts Tech Perspective
Andrew Tarver, Founding Partner, Motive Partners
As alternatives move into the wealth mainstream, we will see three specific, and related trends.
(1) Alternatives will accelerate advisor adoption of AI capabilities, assisting with the construction of the wealth management portfolios, modelling personalised multi-asset class investment wrappers, accessing asset class specific education and product content through to personalised client prospecting and reporting.
(2) Alternatives will require new forms of liquidity, from new credit products linked to alternatives and the broader wealth portfolio, through to manufacturing a new generation of semi-liquid investment products.
(3) Alternatives entering the mainstream wealth channel will be an existential moment for “WealthTech.” New technology platforms will emerge catering for new asset classes, combining AI capabilities, driving an industry defining investment marketplace and multi-asset investment “smart contract” cores.
Alokik Advani, Managing Partner of Fidelity International Strategic Ventures
(1) The convergence of public and private markets will accelerate. In 2024, we will see the growing digitisation of alts — as GPs and LPs replace manual processes across their front, middle, and back offices with modern software. This will lead to improved transparency, streamlined operations, and enhanced collaboration. Standardised data will play a crucial role in this market structure evolution, enabling superior primary and secondary liquidity by allowing for better price discovery in the pre-trade. MSCI’s recent acquisition of Burgiss illustrates this growing consensus around the importance of private assets data with many players working to become the “Bloomberg for private markets.” However, it will be the next generation of private assets software businesses with access to granular data that will unlock its true potential, with firm such as 73 Strings ideally positioned.
(2) Consolidation of distribution. Recent years have seen an explosion of alternatives distribution platforms. However, many have limited product offerings and have struggled to attain scale. We believe that the market will start to consolidate with leading players, such as Moonfare and iCapital, well positioned to take market share as the private assets fundraising market’s winter starts to thaw.
🎙You can listen to Alokik’s podcast here on Alt Goes Mainstream with his portfolio company founder, Steffen Pauls of Moonfare, on why they believe in the future of retail distribution in alts.
Ashwin Gupta, MD, Goldman Sachs Growth Equity & iCapital Board Director
The first wave of innovation in the alts to retail space was generally aimed at access – creating the products, infrastructure and distribution to enable retail investors and advisors to purchase Alts products. As access has become increasingly prevalent, we believe there will be an increased focus around integrating alternatives into other critical infrastructure used by advisors. This infrastructure could include financial planning tools, portfolio analytics solutions, model portfolios, and fund accounting / administration. These integrations can be a critical step for advisors to be able to provide holistic solutions to their clients, and better harnessing the benefits of portfolios that contain a combination of public and private market assets.
Yann Magnan, Abhishek Pandey, Vinod Vijapur, Sambeet Parija, Co-Founders, 73 Strings
2023 has been quite a year, sending shock waves all across including in the Alts industry! But we at 73 Strings firmly believe that the Alts industry is, and will continue to emerge, stronger. Capital will continue to flow towards an industry that has demonstrated resilience and capability to generate strong returns for capital allocators around the world. We also firmly believe that while the “haute couture” approach of the industry will continue to prevail, digitalization of front, middle and back-office processes and leverage on new generation technologies including AI, which will accelerate as a way to bring “haute couture” into a new world, and harness more value out of the intelligence hidden amongst vast amount of data collected, created and analyzed by Alternative Investment Funds, their investors, and their advisors.
We at 73 Strings will be committed in 2024 and beyond to continue to develop the next generation technologies for data collection, monitoring and valuation of illiquid assets which will help propel the industry in a new world of returns.
📝 You can read Yann’s interview on Alt Goes Mainstream to hear more about why he believes data and analytics will push private markets forward. Read here.
Gareth Hewitt & Jamie Nascimento, Co-Founders, LemonEdge
Alts is an industry that trends towards increasing complexity, and we at LemonEdge, don't see that changing anytime soon. Throughout 2023 our clients have sought to solve, through automation, an ever increasing range of intricate problems at scale using our platform. One example has been managing the sharp increase of investors into funds, of which there is diminishing commonality of terms, through growing structures.
All of which is only a path to accessing the attractive wealth/retail channel. This will explode the number of allocations to investors sharply from the traditional 10- 100+ range to more of the 1k - 10k+, which traditionally was very rare prior to 2023. This requires all technology to scale to meet these challenges head on.
To manage this growth in both scale and complexity requires an order of magnitude in change across the back-office to meet the demand. We are seeing this movement across the industry – but the ball is only just beginning to roll.
🎙 You can listen to Gareth on Alt Goes Mainstream share why he believes the digitization of fund accounting will take alts into the mainstream. Listen here.
Levent Altunel & Enrico Ohnemuller, Co-Founders of bunch
2023 has seen some cooling off with regards to alts funds raising capital. While investments have been lower in 2023 compared to 2022, in Europe investments were still up c. 20% vs 2020 while other regions are struggling to hit pre-covid levels. This makes us hopeful that Europe had a softer landing, and is ready for the next growth phase. We strongly believe that we are going to enter a period of continued growth especially for Alts in Europe. Among other things, recent regulatory changes to ELTIFs will make it easier for retail money to flow into Alts.
🎙You can listen to Levent and Enrico discuss on Alt Goes Mainstream how they are creating the operating system for private market investors. Listen here.
The Venture Capital Perspective
Samir Kaji, Co-Founder & CEO, Allocate
We believe economic conditions will begin to settle in 2024, and within the alternative space, we expect to see individual investors start again increasing their investment in venture capital (and private technology in general) investment).
The intersection of the beginning of a new technology supercycle with generative AI alongside the current market dislocation appears to translate to an extremely investor friendly environment for the next several years.
🎙You can listen to Samir’s podcast here on Alt Goes Mainstream to learn more about why emerging managers are the future of VC.
Filip Dames, Co-Founder & Partner, Cherry Ventures
As we look ahead to 2024, the alternative investment space, specifically in Venture Capital, will continue to face challenges: The competition has intensified, with the need to contend with higher treasury rates. To secure funding from Limited Partners, only the very best teams with a proven track record will likely succeed, setting a higher standard for the industry overall. My expectation is that fewer new funds, especially those led by solo-General Partners, will enter the market, suggesting a trend towards consolidation and a preference for established expertise.
One additional aspect that excites me is the rise of platforms like Bunch, which are reshaping access to alternative investments. These platforms play a crucial role in making alternative investments more accessible to a broader audience.
For Venture Capital, I am particularly optimistic about the upcoming vintages, as valuations are showing signs of decline and the departure of "tourist investors" who have flooded the market with excessive capital. At Cherry, we remain committed to seeking out exceptional teams, benefiting from a quieter investment environment with less noise and hype. Historically, some of the world's best companies have emerged under adverse market conditions, emphasizing the resilience of quality businesses. We will continue our focus on technology, maintaining a long-term perspective, confident that enduring companies will consistently outperform in the ever-evolving investment landscape.
🎙You can listen to Filip’s podcast here on Alt Goes Mainstream about lessons learned from building one of Europe’s early tech successes and why he’s excited about the continued evolution of Europe’s tech ecosystem as the founder of one of the top seed funds in the region.
Joe Schorge, Founder & Managing Partner, Isomer Capital
From a venture capital perspective here in Europe we look forward to 2024 with cautious expectations, tempered by high hopes. We expect 2024 to continue to be challenging, yet with the potential to surprise on the upside. Like 2023, the coming year will be tough for fundraising, and VC fund NAVs will struggle, especially in the face of ongoing lowered valuations as companies that have not grown into their last round valuations are forced to raise in the market, and revalue. The exceptional area is of course anything remotely credible in AI, which everyone is talking about. For sure there will be high-value applications discovered and delivered, but this area already displays signs of bubble economics, so investors should approach with caution. But that said, businesses with strong fundamentals continue to grow, attract capital, and exit. We see slower but steady growth in our portfolios, and we continue to get pleasant exit surprises are regular intervals.
Over the past year investors have become more conservative with their overall allocations, and especially with their “new manager” budgets. This has made fundraising tough for most managers, and has also led to increased demand for secondary/liquidity solutions across the board — LP positions, company shares, GP-led and even GP economics are coming to market. The best deals will continue to accrue to players entrenched in the ecosystem, not least because of the disparity of information they possess. Having transparency on how assets are actually performing through strong relationships with both entrepreneurs and GPs will allow more accurate pricing, and proprietary sourcing of the best deals. The same goes for how LPs are thinking about making new commitments; those heavily entrenched through legacy or specialism will be most appealing as potential primary investment opportunities for LPs, as safer pairs of hands in a still turbulent market. In 2024 valuations will stay low and whilst some LPs will shy away, those able to deploy capital will find an attractive market full of opportunity.
🎙You can listen to Joe’s podcast here on Alt Goes Mainstream about why he thinks now is Europe’s time for venture. Listen here.
The Family Office perspective
Mario Gotze, Companion-M & Eintracht Frankfurt / German National Team footballer
Advisors without any programmatic strategy in alts will face significant challenges in acquiring and retaining the next-generation client.
Investors will ask for a wider menu of options for diversification, specifically unique private opportunities ranging from venture capital to private credit.
I think cross-asset management (direct, managed / private, public / access to different kind of opportunities) will be crucial and having the possibility to be selective with managers.
You need to be big enough (AuM) and be as flexible as possible at the same time to make the best decision for your portfolio. At the same time ‘small’ enough to invest in emerging / first time manager without interfering with your strategy and portfolio construction .
Current mandates are bit outdated / old-fashioned and have classic approaches (static mandates are not ideal for current market cycles and quick market changes).
James Heath, Investment Principal, dara5
2024 will be the year of the hyper specialist VC. Where conviction is hard to come by, and FOMO isn't driving investment decisions, specialists who know how to pick in this market will shine. With a significant reduction in capital allocated to VC in 2023, the supply and demand laws are tipping in favour of GPs with capital. Specialists who select well and pay close attention to entry prices have the power to unlock outsized returns whilst the number of GPs investing could half.
The GP Stakes Fund perspective
Todd Owens, Co-Founder & Managing Partner, Cantilever Group, Partner, Broadhaven Capital Partners
In 2024, the tailwinds in the alternatives space will continue. The largest managers will gather substantial assets, while smaller managers with distinctive records and investment strategies will also have success in growing their franchises. Institutional investors will continue to increase allocations and there will be ongoing inroads to the retail investor, which is the area of largest potential allocation increases to alternatives.
With an industry backdrop that remains favorable, the most interesting developments will be in the details. We expect that the capital raising environment will be better in 2024, but not yet robust as realizations in private equity will increase but still be muted. The SPAC craze of 2021 pulled forward a lot of IPO/exits but that pull forward effect should dissipate in 2024.
In credit, sticky interest rates will lead to an uptick in credit issues that will be manageable, but shave returns. Notwithstanding the return of a credit cycle, private credit in all its forms will see continued growth as bank balance sheets remain the gift that keeps giving. SVB and First Republic might be in the rear-view mirror, but new capital regulations for banks down to $100B will continue the reductions in balance sheet assets. The asset liability mismatch inherent in the banking system is not changing, and private credit funds in general have a much better asset liability match (matching long term assets with long term locked up capital) which will continue to make it a better place to source long term credit. There will be continued consolidation, particularly in credit, as alternative managers seek to add private credit to their platform to add diversification and growth, while small and medium sized private credit managers will seek competitive scale and growth capital.
The stakes industry will continue to grow and evolve. We will see some middle market players throw in the towel, while others will successfully raise capital. The product offering will continue to diversify, with capital solutions across the board for GPs including NAV financing, GP loans and preferreds and GP equity investments. General Partners will now have many more forms of financing available to them for their own businesses as they seek to establish diversified and scaled alternative asset management platforms.
Catherine Haumesser, Partner, Armen
Further expansion of the GP stake market in Europe
Building a GP today is more capital intensive than it was 15 years ago. As a result, GPs are looking at strategic options to strengthen their balance sheet, add capabilities, manage a smooth generational transition and invest behind their franchise. The European GP stake market is relatively nascent when compared to the US but evolving rapidly. We expect to see an increasing number of GP stake transactions every year.
Larger GPs to continue scaling inorganically
At the larger end, GPs will use their balance sheets to fill in gaps in their offerings by acquiring complementary businesses which will benefit from their existing distribution efforts. For instance, EQT acquired Barings Asia and LSP and Oaktree taking stakes in Tikehau and 17Capital. We expect further sizable acquisitions in 2024.
Fundraising market to remain challenging
Historically, subsequent funds would see an increment in roman numeral and a sizable step up in total commitments but now GPs are chasing fewer dollars in order to maintain current fund size. In turn, LPs are using the environment to rationalize their portfolios and reduce the number of GP relationships. As a result, GPs are using all available tools to generate liquidity and raise capital in different shapes and forms. We expect this dynamic to continue into 2024.
Wealth channel and digital platforms to further gain importance in Europe
Platforms such as Private Corner in France have been a key enabler of the democratization of PE that we have seen in a number of European countries. Despite the regulatory challenges and heterogeneity of the European market, we expect a continued push from both managers and distributors to access retail capital.
Data science to increasingly become a strategic area for GPs
A growing set of managers are looking at the potential application and incorporating of data science in the core of their investment process, both at the portfolio and GP level.
📝 You can read some of Catherine’s thoughts on private markets and GP staking from her recent speaking engagement at SuperInvestor in Zurich here.
The Crypto perspective
Ken Nguyen, Co-Founder & CEO, Republic
This is the year that tokenized security and tokenized assets will go mainstream.
Bitcoin will exceed $100,000.
🎙You can listen to Ken’s podcast here on Alt Goes Mainstream to hear more about how Republic is championing the retail revolution and democratizing access to private markets.
Austin Diamond, Co-Founder & CEO, Alongside
Spot BTC ETF approvals make a splash, but excitement quickly fades.
The biggest asset managers in the world (ex-Vanguard) deploy fortunes into a marketing arms race post approval, bringing about much needed institutional credibility to the category, but inefficiencies surrounding the structure such as SEC mandated cash creation/redemptions vs. in kind that lead to tax inefficiencies and high expense ratios lead many allocators with the regulatory flexibility to do so to buy BTC directly with institutional custodians like Coinbase. Traditional brokerages subsequently build the capability to support cryptoassets after seeing companies like Robinhood print money this way. Institutional grade crypto custodians like Anchorage, Copper, BitGo etc. field acquisition offers from TradFi players that lack the ability to build this correctly in house.
NFTs make a comeback, but not the way you think.
It's a misnomer that NFTs are largely about monkey JPEGs. While use cases like ticketing that require high throughput remain constrained by infrastructural bottlenecks, themes like membership clubs and cultural assets (see: LinksDAO, Poolsuite, Blackbird etc) come raging back.
Thank you
Thanks to all of the experts who shared their views on the world of private markets and to all of the readers who have become part of the Alt Goes Mainstream community and engaged with us over the course of the year. Happy holidays and best wishes for a healthy, happy, and exciting 2024!
What predictions do you have for the future of alts in 2024? Feel free to share them with us here.