GLOBAL - The capacity of private markets to facilitate operational improvements and to offer alignment of interests between company management and investors should help those markets to yield significantly better returns than public market investments in the second half of this year, a new report has found.

According to Partners Group, investment opportunities in private markets - including private equity, private real estate, private infrastructure and private debt - persist, in many parts of the world and across different sectors.

The investment manager said: “With the dampened growth perspectives as well as the artificially depressed interest levels resulting in a low-return environment across all asset classes, both our research and past experience clearly suggest that private markets have been able to deliver a substantial outperformance in challenging times.”

In the private equity sphere, Partners Group suggested that economic uncertainty, reduced level of competition from established funds that have spent their capital and a lower level of bank funding would enable asset managers to take advantage of opportunistic buying prospects and declining valuations.

In addition, the group believes that any period of stress created attractive entries into secondary investments.

“Secondaries or the purchase of single or portfolios of assets on the secondary market also offer compelling opportunities,” Partners Group added. “New regulations, structural issues and increased portfolio management activities on the part of institutional investors are likely to generate additional secondary sales by banks seeking to meet capital requirements and other investors.”

Partners Group also found attractive opportunities in the infrastructure space, where investment transactions outside the large cap core space offer “equitable premiums for acceptable risks”.

The firm, which pointed out that many institutional investors have increasingly looked to this private asset class in their search for yield, nonetheless conceded that the focus should be put on yielding brownfield assets with an inherent inflation link.

However, in the private real estate arena report stressed that investors have focused too much attention on prime property locations and paid less attention to the premium prices that core properties command.

“As a consequence, demand for core assets has caused cap rate spreads between core and non-core properties to reach unwarranted multi-year highs, largely driven by risk aversion, economic uncertainty and fear on the part of investors,” it said.

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