Maximizing the Opportunity in Private Markets

5-Year Outlook: Macroeconomic Considerations & Market Impacts

The relationship between wider macroeconomic conditions and returns in financial markets, public or private, is rarely straightforward. Nevertheless, trends in broad policy decisions and macroeconomics continue to provide vital context to investors’ allocation decisions. Information on valuations and technical factors are also important. However, over longer investment horizons, macroeconomic factors should dominate investors’ decision-making process.

Developed in partnership with Oxford Economics.

Macroeconomic Considerations

Advanced Economies are Short on Demand

Structural factors such as demographics and weak productivity are keeping growth low, which points to continued low inflation and historically low level of interest rates.

Fiscal Policy Decisions are Critical

The glut of global savings gives policymakers the space to act. Decisions on whether to provide the sort of sustained stimulus that would lift us out of this equilibrium will have significant impacts.

Monetary Policy will have Questionable Effectiveness

Not only is there limited room to lower policy rates and expand asset purchases, research points to the effectiveness of monetary policy being much lower now than it has been in the past.

The Long-Term Outlook is Uncertain

The magnitude of the economic shock from the pandemic and the degree to which it leaves lasting scars on the economy is still a key unknown. Although we are likely to see high rates of growth, the level of output in the economy will struggle to surpass the pre-COVID-19 baseline.

Impact on Markets

Financial markets are unlikely to continue to defy weak macroeconomic fundamentals over the next decade, implying heightened risk in public markets. Stock market earnings are expected to be lower than pre-pandemic forecasts, with multiples increasingly looking stretched. Weak growth and low inflation mean that policy rates will be forced to remain low by historical standards.

A Rebalancing Strategy could Help Uneven Performance of Fund Strategies

The performance of different strategies has varied in different market cycles (e.g., venture capital before and after the dot-com bubble), which suggests a review and potential rebalancing of private fund allocations under current market conditions.

Portfolio Allocation Strategies may be the Key

While manager selection is an important part of private asset investing, active portfolio management and strategic portfolio tilts towards assets or sectors which are expected to outperform are key to performance during periods of market disruption.

The Need for Liquidity Continues to Grow

During periods of market uncertainty, investors are more likely to experience financial distress, compounding the need for early liquidity. Yet secondary markets for private asset have not been able to support broad participation by all investor types, especially small-to-medium sized individual investors.

Ben strives to provide rapid, cost-effective liquidity at potentially higher advance rates and may provide the opportunity needed to support your portfolio investment goals. Gain a deeper insight into the impact of these perspectives by reviewing two forecast illustrations developed by Ben’s Risk Management Team and shared in this “Maximizing the Opportunities in Private Markets report.

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