IPM – Edition May 2023

In 2023, persistent high inflation, volatility across the global banking sector, and continued geopolitical conflicts remain key themes for many investors. Against this backdrop, public equities have performed surprisingly well, and markets are finally seeing signs of disinflation with the pricing weakness across the commodity complex, more visibility to peak rates, and contagion from recent bank failures seemingly under control.

Economies fared well in the first quarter of the year and performed better than expected. Initial data showed the eurozone returned to modest expansion, of 0.1% QoQ, having stagnated in 4Q22, while the US slowed to growth of 1.1% QoQ at an annualized pace. Most of the advanced economies are expected to experience some decline in output during the downturn, which started in mid-22. APAC GDP growth is projected to accelerate from 3.1% in 4Q22 to 4.2% 1Q23, according to UBS Investment Bank. However, the strong headline number belies a weak showing in a number of countries reported so far.

We explored the link between sustainability and tech in real estate. Responsible for approximately 40%¹ of global energy related carbon emissions, real estate is facing heightened regulation and ever evolving standards to adhere to, with approximately 600 green building certification systems worldwide. As a result, there is a greater focus on ensuring buildings are compliant with these certifications and other regulatory standards.

We zoomed in on the social side of life sciences real estate. These include the potential for life sciences facilities to significantly reduce the costs of goods for occupiers, passing on savings to end users and patients, and making new and curative therapies more affordable in the market; supporting their viability, amongst other factors.

In infrastructure, we explored secular trends such as decarbonization, digitalization, and demographic change, all adding an attractive “growth” element to what is already a relatively stable asset class. However, we are beginning to see more divergence in performance across different infrastructure assets and strategies. Investors must remember that not all infrastructure is created equal.

Private equity (the market for leveraged buyouts) has faced headwinds the past year, following in the footsteps of public equity. Existing investments faced a lost year of growth and estimated returns for 2022 are negative. We believe this trend is unlikely to repeat itself, provided no severe economic recession occurs or a public market correction as in 2022.

¹World Green Building Council, https://worldgbc.org/advancing-net-zero/embodied-carbon/, May 23.