Volatility and uncertainty can deliver investors new opportunities 

The outlook for interest rates and markets in 2023 is still uncertain, but economists and some early indicators are pointing to an improved outlook in Q4. 

Supply chains, war in Eastern Europe and the hangover effects of Covid lockdowns globally have driven inflation across the board and central banks have been again raising interest rates faster than we have seen in decades. 

For investors, the increased volatility presents challenges and opportunities. As we look to the new financial year ahead there is a growing expectation inflation will peak and begin to fall in the later part of 2023. 

If interest rates follow the same trajectory then it might mean that savvy investors should be looking to time their re-entry into markets while valuations remain compressed. 

Why investors are focusing on  private markets in 2023 

There are a number of reasons why private markets may currently be more attractive to investors than public markets. 

Valuations: Private market valuations tend to be lower than public market valuations, which can provide investors with the opportunity to invest in companies at a lower cost. 

Less liquidity: Private markets typically have less liquidity than public markets, which can make it more difficult for investors to buy and sell securities. However, this also means that private market investments can be less affected by short-term market fluctuations. 

Higher returns: Historically, private market investments have generated higher returns than public market investments, as private companies tend to have a higher growth potential than publicly traded companies. 

Potential for stabilising interest rates in late 2023 

A stabilising interest rate environment could also drive further gains in private markets. If inflation is tampered as hoped, and interest rates stabilize, we will see many benefits for investors including: 

Predictability: When interest rates are stable, investors have a better idea of what to expect in terms of returns on their investments. This can make it easier for investors to plan and make investment decisions. 

Reduced volatility: Stable interest rates can help to reduce the volatility of investments, which can provide investors with a more predictable return on their investments. 

Increased investment activity: Investment activity is encouraged when interest rates are stable as investors are more likely to invest when they know what to expect in terms of returns. This can increase the liquidity and value of investments. 

Reduced borrowing costs: Stable interest rates can also benefit companies and individuals by reducing the cost of borrowing. This can help to encourage growth and investment in the economy. 

Are private markets still an attractive option for investors this year? 

It is always difficult to pick the bottom of the market, but we can look to the bigger-picture economic themes to get a guide. 

If inflation drops and interest rates steady as predicted, then markets will be set to rebound quickly. 

Investors with capital looking to find the right opportunity could turn to private markets and find the companies that will deliver in the next growth cycle. 

However, it’s important to note that investing in private markets also comes with its own set of risks, such as lack of liquidity and transparency, a higher risk of fraud and regulatory issues, and a greater dependence on the reputation and performance of the managers. It’s important to consult with a financial advisor and conduct thorough research before making any investment decisions. 

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