Private market assets are starting to enter a ‘more selective phase’, as returns are increasingly driven by income resilience, asset quality, operational performance, and disciplined market recovery, according to Aberdeen Investments.
In its latest Private Markets House View, Aberdeen Investments highlighted how manager selection, sector positioning, and diversification were becoming increasingly important amid an increase in performance dispersion.
While valuations have gone through a period of stabilisation and financing conditions have improved, the outlook warned that global growth remained uneven, and geopolitical risks and persistent inflation continued to influence the investment landscape.
Furthermore, while deployment was expected to improve throughout the year, competition for high-quality assets was growing.
Returns were therefore likely to be increasingly driven by operational value creation, sector selection, and structural growth, rather than a wider market recovery, the paper argued.
Analysis from Aberdeen forecast a five-year internal rate of return of 9-11% for core infrastructure strategies and 12-15% for core-plus strategies.
Real estate expected return targets were 6-8% for core strategies and 10-15% for value-add strategies, while private credit five-year returns were estimated at 8-12% for direct lending strategies and 6-8% for investment-grade private credit.
Aberdeen was ‘cautiously constructive’ on private equity, as deal activity recovers selectively and returns are increasingly driven by operational value creation.
“Private markets are entering a more selective phase,” commented Aberdeen Investments head of private markets solutions, Nalaka de Silva.
“In this environment, fundamentals matter more than ever, from the quality of the underlying assets and the strength of income generation to disciplined capital deployment. As a result, manager selection and strategy are becoming increasingly important drivers of outcomes.
“We continue to see opportunities in structurally supported sectors such as digital infrastructure, the energy transition, and technology-enabled businesses. However, dispersion across sectors and assets is rising, reinforcing the need for a highly selective approach to capital allocation.”
