Is Now a Good Time to Invest in the Energy Transition?
Yes, the transition to a low-carbon economy is producing a myriad of productive ways to put capital to work.
Authored by: Wade O'Brien
VantagePoint: Investing in a Low-Carbon Future
The energy transition involves a complex and dynamic set of changes in the way we do just about everything. While significant progress has been made in some quarters, considerable capital will be needed to fund the massive investment required over coming decades. We expect investors with a deliberate and thoughtful plan to invest in the transition across the risk/reward spectrum will be rewarded.
Is Now a Good Time to Allocate to Private Credit Strategies?
Yes. Despite elevated macro uncertainty, it is an opportune time to allocate to private credit.
Private Credit: Opportunities Abound
The current macroeconomic and market environment creates an attractive opportunity for credit opportunity managers. We believe managers with flexible capital, strong sourcing efforts, and structuring skills will find ample investment opportunities and will deliver strong returns in the coming years.
Should Investors Continue to Overweight US Small Caps Despite Recent Banking Sector Stress and Growing Recession Fears?
Yes, investors should overweight US small-cap stocks, given valuations remain attractive and will provide a cushion if an expected recession unfolds.
Investors Should Direct Their Attention to Private Lending
The current market turmoil has created an attractive environment for direct lenders. The dislocation in the public markets has driven borrowers to private lenders that can demand better pricing and lender-friendly terms. As a floating-rate asset, lenders are benefiting from the sharp increase in rates and all-in yields are in the low double digits.
European Bank Stress Adds to Economic Growth Challenges
On 20 March, investors awoke to news Swiss authorities had used emergency measures to push through a hastily arranged merger of Credit Suisse and UBS. Following two recent bank failures in the United States, the announcement raised questions over the health of European banks and the broader economy.
2023 Outlook: Real Assets
We expect energy equities will be resilient due to underinvestment in recent years. So, we don’t think investors should underweight this economic sector in the near term despite some long-term headwinds from decarbonization efforts. In real estate, we think offices may finally offer some attractive opportunities for the discerning investor.
2023 Outlook: Credits
We expect most liquid credits will generate higher returns in 2023 relative to 2022, given the better yields on offer. We also see private credit as offering opportunities, particularly in secondary trading.
Should Credit Investors Expect More Negative Headlines in the Months Ahead?
Yes. The combination of rising interest rates and a deteriorating earnings outlook is likely to generate ample negative headlines about credit in the months ahead.