TLDR
– Shakeout already underway in sustainability private equity, infrastructure, and venture capital
– Continued shakeout and flight to quality expected in the first half of 2024
In the back half of 2023, the private markets experienced a pull-back in sustainability private equity, infrastructure, and venture capital. This trend is expected to continue into the first half of 2024 due to high interest rates and forecasts of elevated rates compared to historic lows. Venture firms have shut down, leading to repricing and lower valuations among venture-backed companies. Additionally, private infrastructure investors are likely to pause due to interest rate effects. However, sectors such as AI and sustainability/climate remain somewhat insulated and may still attract investment.
Dry powder, or capital raised by firms that needs to be invested, is currently at a record high across most asset categories. This means that in the first half of 2024, there will likely be a continued flight to quality and a focus on startups, companies, and projects that are perceived as clear “winners.” However, riskier prospects may face difficulties in securing funding.
In the latter half of 2024, sustainability and climate investments are expected to rebound, driven by sectoral momentum and a large amount of available capital. Infra investors are more likely to prioritize projects with “ESG” attributes over fossil-fueled power projects. The possibility of a second Trump presidency and a potential federal pullback on climate policy could delay the rush back into the sector, but the overall investment opportunity remains clear.
