What to expect in investment in 2023

The end of 2022 marked new challenges, including volatile markets, high inflation, and geopolitical issues, taking the focus away from the pandemic. As a recession seems likely, a shift in behaviour is observed, with investors turning defensive and focusing on robust and resilient cash flows. Volatility presents market opportunities, and investors need a strategy that balances risk management with flexibility to pursue higher-risk opportunities.

Capital Flows

The end of 2022 saw significant investment from US investors in the UK and Europe due to high interest rates and historic high exchange rates between the dollar and the pound. This was especially true in the UK commercial real estate sector, where the dollar price per square meter reached a low not seen since the global financial crisis, effectively putting the UK on sale for US investors. The strength of the dollar has since decreased, and it will be interesting to see if capital flows remain strong in this area in 2023.

Real Estate

High interest rates are reducing the value of assets, making it a good time for long-term portfolio building. Real estate investment managers are struggling to raise capital, so there may be excellent deals available as more assets come to market at low prices due to liquidity issues. The high cost of living and inflation will also result in a surplus of small rental units as tenants move into larger units to combat high costs.

Private Equity

Volatility and high interest rates have led investors to seek safer investments, causing Limited Partners (LPs) to move capital to established General Partners (GPs) and funds with a proven track record during uncertain times. Emerging players must become innovative and competitive in raising capital to remain relevant. A competitive recruitment strategy is crucial to securing capital in the short and long-term, and we have seen a high demand for capital raisers across Europe and the UK.

Disruptions in Wealth Management

The wealth management space is poised for disruption, driven by a new generation of investors with expectations shaped by new technologies. Rapid change and consolidation in 2022 will create opportunities for new entrants and existing wealth businesses to double down to retain the sticky money. It will be interesting to see if these disruptive firms can capture a significant client base.

ESG – Spotlight on ‘Active Stewardship’

‘Strong Stewardship’ is going to be key to unlocking climate action and de-carbonisation through the listed supply chain. Good strides were made in 2022 with more than 200 asset managers signing up for the stewardship code, which requires institutional investors to be transparent about their investment processes, engage with investee companies and vote at shareholder meetings. Voting will be crucial in driving change and we anticipate that a key focus and challenge for 2022 will be joining up the fragmented voting ecosystem. Much will depend on whether listed companies can drive the change, and this will in turn permeate to mid-cap and high-growth companies, trickling down to become commonplace across the industry.

2023 promises to be an interesting year as investors navigate these challenges and take advantage of the opportunities that arise. If you would like to discuss any of the topics raised in this piece in more detail, please contact Amanda Floyd (amanda.floyd@beaumontbailey.com)